TOP THREE CONSIDERATIONS FOR SELECTING ENTITY MANAGEMENT SOFTWARE
In the face of increasing regulatory complexity, now more than ever organizations need a secure, automated, and scalable solution to manage entity records. In this recorded program, we’ll discuss how to select the right entity management software for your organization including aspects like security, automation, and regular enhancements. You’ll see how our award-winning system, CSC Entity ManagementSM, can streamline the management of your entities and give you an insider look into some of the 2018 enhancements to the platform. You’ll come away with practical tips for how to select the right platform for your needs.LEARN MORE
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Why an entity management system is critical for effective corporate governance and compliance
How to organize, maximize, and automate critical entity data, reports, organization charts, and other documents
How to select the right entity management software for your organization's needs
Disclaimer: Please be advised that this recorded webinar has been edited from its original format, which may have included a product demo. To set up a live demo or to request more information, please complete the form to the right. Or if you are currently not on CSC Global, there is a link to the website in the description of this video. Thank you.
Annie: Hello, everyone, and welcome to today's webinar, "2021 Annual Reports: How to Stay in Good Standing." My name is Annie Triboletti, and I will be your moderator.
Joining us today are Ciela McDevitt and Christine Matarese. Ciela is a corporate solutions manager for the Corporation Legal Solutions Division of CSC and has over 14 years of experience. Ciela is responsible for customer satisfaction, technology training, and new services. Christine is a corporate trainer on the Annual Reports Service Team, based at CSC's global headquarters in Wilmington, Delaware. With over 10 years of experience, Christine focuses on training new, customer-facing team members and provides continuing education. And with that, let's welcome Ciela and Christine.
Ciela: Thank you, Annie. It's my pleasure to present from Wilmington, Delaware today and to introduce CSC. CSC services over 10,000 U.S.-based law firms. We provide real estate document and UCC searching and electronic recording of mortgage documents to over 3,000 financial customers. We service over 180,000 corporate clients of all sizes from our incorporate.com Entrepreneur Division up to supporting 90% of the Fortune 500. And CSC is the world's largest corporate domain registrar. So we protect more than 65 of the 100 best global brands, including 7 of the top 10.
Today, we will cover what is an annual report, and that should be the first point of clarification. So, for purposes of this presentation, we'll use the term "annual report" to mean the secretary of state renewal filing that's required for a corporate entity, like an LLC or a corporation, to maintain good standing. We're going to look at the preparation of some forms and how they're filed. We'll talk about some challenges presented by COVID-19, which everyone on this webinar is probably already aware of. The reason why we'll talk about it is because we have some great resources available. So we'll share those, and they're also available in the Resource widget. So we'll mention the CSC blog, and that's available there, and also the CSC COVID Resource Center.
We're going to talk about the consequences of not filing an annual report just because we think that that's helpful in deciding who is responsible for them and having a backup plan. We'll talk about what we expect this year. There are some changes coming down the line with, you know, who can sign and how. So we'll get into that. We'll talk about, of course, the benefits of using CSC to manage the annual reports. And no matter what you decide to do, we have also included some self-health check questions to evaluate your process.
As I mentioned in the agenda, an annual report, for the purpose of this presentation, is the annual filing to the secretary of state for the entity to stay in compliance. They go by many names, like California calls it a statement of information. In Delaware, it's a franchise tax with an annual report. It can go by an annual list and need a publication. And in some states, there is a handful of them where it's actually an every-other-year report or a biennial report.
Christine: So now that Ciela kind of talked to us about what an annual report is, the next question is: When are annual reports due? Just like the names of annual reports vary from state to state, the due date varies from jurisdiction to jurisdiction as well. That is a theme that you will see as we continue through this webinar today.
The due dates can vary on a number of factors, but there's four kind of main categories that they fall into. The due date can be based on the fiscal year end. It can be based on the anniversary month or, more specifically, the anniversary date. And when we say "anniversary," we're talking about when the entity registered in that particular state to do business. Or it could be due on one day annually as determined by the jurisdiction.
So some examples, just to give you guys an idea of how this can vary across the board, for fiscal year end, a lot of times you'll see the wording that the annual report is going to be due the 15th day of the 4th month after your fiscal year end. That's the case for Kansas corporations. So if your fiscal year end closes December 31st, your annual report is going to be due April 15th. If your fiscal year end closes September 30th, your annual report would be due January 15th. Others worded a little differently, Massachusetts corps are due two and a half months after the close of your fiscal year. So that makes your annual report due March 15th if you have a December 31st calendar year end.
Anniversary due dates can vary as well. Like I said, it is based on when you initially registered in the state. Massachusetts LLCs are going to be due on the actual date that you registered, your anniversary date, and the same with Utah corporations and LLCs. But some other states use the anniversary month to determine when it's due. Wyoming is going to be due by the first day of your anniversary month, but other states, like New Jersey and Washington, are going to be due by the last day of your anniversary month. Illinois corporations are actually due prior to the first day of your anniversary month. So if you registered in Illinois in January, your annual report is actually due by December 31st. They need to get that report in before the anniversary month.
And Ciela did mention, also, that we do have some states where they are due biennial. So they are every other year, not every year. And those biennial reports can fall into these four buckets as well. New Mexico is based on your fiscal year end, but it's biennial. It's every other year. New York is biennial based on your anniversary month. It's that last day of the month.
And then, the states that have a specific deadline day for all the jurisdictions for the entities in the jurisdiction, those are going to be the big ones. Any entity in Florida, the annual report is due by May 1st. The same thing with Georgia. It's April 1st. So you see high-traffic volume for those states. You do have states that have a specific due date, but sometimes it varies based on the entity type. Delaware corporations are due March 1st, but LLCs and LPs are due June 1st. So you can see that there is a lot of information. There is a lot of variation from state to state and from entity type to entity type as well.
I think 2020 for everyone was a bit of a challenging year. The COVID-19 pandemic kind of affected everyone, and the states were no exception. You know, we had to pivot pretty quickly back in March. Things changed pretty quickly, and things were changing on a daily basis. So there were a lot of challenges in terms of annual report filings. We had states suddenly closing for unknown lengths of time. We had delayed turnaround times in terms of filing not only annual reports but all corporate filings, and then delays in receiving evidence back. You know, you had states that were just closing to having people walk in to be able to drop filings off. You had states that pivoted to having their employees work from home, which impacted the turnaround time and the ability of them to complete filings. So there were definitely some challenges.
We did see a lot of those states that had due dates popping up in March, April, May, June actually extend their due dates, which was, honestly, unheard of until then. And we had some states which delayed their due date and pushed out their due date multiple times, which did cause some confusion. You know, some states initially pushed out due dates by maybe two weeks or maybe a month, thinking things would be resolved pretty quickly. And as things continued over the summer, we saw them pushing out due dates multiple times.
I mentioned some states' employees were working remotely, which, you know, affected if they were needing to deal with original documents, some paper documents that needed to be provided. And then, we did also see some states that stopped accepting hand-delivered paper filings. And they really were moving towards online filings or only accepting things via courier, such as, you know, FedEx or UPS. They basically shut down their office to having people walk in, aside from normal mail delivery.
So 2020 was definitely a challenging year that definitely had an impact to annual reports and how they were filed.
Ciela: Christine, thank you so much for sharing your experiences with us from last year. This is our Resource Center to help out with some of those challenges. We have the state closures and their reopening plans, a link to those here. And you can find this in the widget, the Resource Center of the webinar. There's a link that you could bookmark so that you'll have a place to check state closures. This is also handy for holidays, and there's been some, you know, often obscure events, like a water main break at the secretary of state. So this is a great way to check and know the status.
We file business licenses for our clients. So we're also tracking local level, like your city and county offices, and you'll see that with the business license jurisdictions. Because of our real estate eRecording document service, we have the status of all the counties. We have remote online notarizations by state. Because of everyone working from home, a lot of states enacted new legislation on what they will accept as a signature and also for the notary section. So this has a chart by state of what they'll accept, and it also references the statutes. For our incorporate.com entrepreneurs, we have information about the CARES Act and then the state reopening plans.
So, like we said, the due dates can be kind of all over the place. They can be kind of difficult to track. So what happens if you miss a filing? The very first thing in the majority of states that's going to happen is a loss of good standing. Most states, if you do not file by that due date, that very next day instead of being active or in good standing, in existence, different states use different terminology, you're going to have some type of delinquent status assigned.
As soon as that happens, there's also a lot of penalties or late fees or interest that can occur as soon as that, you know, due date comes and goes. Some states, that late fee, it's a flat fee, and it can be relatively small, like $25. There are other states and other jurisdictions where your fees that are due can be based on either your assets or your shares, which can make your annual fee very expensive. And if there's a late fee incurred, it can be a percentage of whatever your tax is. So we can see those creep up into tens of thousands of dollars, depending on the jurisdiction. I believe Illinois is one of those, and Wyoming as well.
After you're delinquent, states will give you a certain amount of time to get that late report filed, paying that penalty or paying that interest. Washington will give you about 60 days. Illinois gives you about five and a half months, and then after that, you go into a revoked status. So revocation can occur. Once that happens, it is, suddenly, now very much more complicated to get your entity back into good standing. It's no longer a matter of just filing a late report and paying a late fee. Now, there is usually a certificate of reinstatement that needs to be filed with additional fees in addition to the past-due report and those fees.
Some states, actually, don't even allow you to reinstate if you're a foreign entity in that jurisdiction. Rather than a reinstatement, you do, actually, need to file a requalification. You need to re-register your entity, basically as a brand-new entity. There's about 15 jurisdictions that that's the case for corporations, including Maryland and Utah. It can result in a new date of registration in that state. It also can result in a new state ID number, a new jurisdiction ID for that state, which can have effects, you know, trickle-down effects for your other business dealings in the state.
Once your entity becomes revoked, suddenly you have lost the protection of your name in that jurisdiction. Inactive names are not protected at the secretary of state level. So if your entity becomes revoked and somebody comes in to file their company that has a similar name or even the exact same name, that name is now available because your company is no longer active. When you then go to reinstate, you may need to find that you need to register under an elective doing-business-as name. So there are a lot of issues that can occur from that.
We mentioned, first off, a loss of good standing. If you're not in good standing, you don't have the ability to obtain a certificate of good standing from the jurisdiction. You have not completed your annual. You are not in good standing. So the state cannot certify that you are. Certificates of good standing are needed for a variety of things, maybe to open a bank account, maybe to register in an additional state. Maybe you need one to present to another company that you're entering a contract with. So there are a lot of real-world impacts here.
If you lose your standing in the state, you also may lose your ability to bring a lawsuit. Many people are filing a corporation or filing an LLC to have that protection. And if you have not filed your annual report, you have not adhered to the state guidelines for having a corporation or an LLC in that state. So you don't get the protection of having that entity in that state.
And then, also, compromised ability to conduct business. You know, we kind of talked about that already, how you may not be able to get a good standing. You may not be able to open a bank account. You know, if you have to re-register, it's going to change ID numbers and registration dates. It could severely impact your business.
And these days, a lot of states have this information available for public record on their website. Many states, you can just go to the secretary of state's site, do a quick name search, and you can see the status of any particular entity out there. So it is out there for the general public to be able to see whether or not you're in good standing. So filing annual reports on time is something that is very, very important to keeping your entity in compliance.
Christine did a thorough job of illustrating due date variations across the states and across different entity types and what can go wrong when a filing is missed. To help, we've included in the Resource widget a chart that has requirements by state. And we'll also review our dynamic compliance calendar shortly.
On to international. Entities in the U.S. territories all have an annual report requirement, and penalties can be worse. For example, in Puerto Rico, if you're even one day late, there's a $500 penalty, plus 1.5% monthly interest.
Now, outside the U.S. and the U.S. territories, compliance becomes more complex, with many international entity types needing an annual or general meeting, sometimes minute book maintenance, and all of that on top of an annual financial filing. Domestic Canadian entities are great examples of an entity that has that annual or general meeting requirement. Canadian entities can also register in additional provinces, kind of like a Delaware LLC could also register or qualify to do business in New Jersey. Not all, but many of the provinces require a registered agent and an annual report. So that's somewhat similar to the U.S. And if you would like help uncovering the requirements, at the end of the session today, you'll be able to request a call from a compliance specialist, and we can certainly go over that with you.
And worldwide, every country is different. So we're not getting into that on today's session. It is something CSC can help with. We can provide corporate secretarial services all over the world. We can also do a corporate health check service to uncover your core entity data and review public registry information for any deficiencies. We monitor regulatory changes, and we can also assist with international expansion.
What about my business license? So we wanted to clarify these because they often get confused with the annual report. They can often have even more severe consequences, like officers of the company needing to make a court appearance.
So some clarifications here. Business licenses are driven more by the industry or the type of business. So, for example, a retail clothing store will have different license requirements from a restaurant or a healthcare facility. It also can revolve around the location of the business. So depending on where there's a physical presence, the local jurisdictions, like the city or the county, may have a requirement for operating within their jurisdiction. And then, there's also different boards, like the department of health or the department of insurance that may require a license.
We're going to dive much deeper into this in a webinar next week, which we would love to have you attend. So we included the registration link in the Resource widget. It's available today. So you can use that to sign up.
Business licenses are different from annual reports, because annual reports, the requirements more so revolve around the state of registration and whether it's domestic or foreign to that state, the entity type, and also the due date. 2021 Insights: What to Expect Next. More legislation changes may be coming. We've included in the Resource widget a link to the CSC blog. CSC does monitor legislation changes, and we post updates as we learn about them on the blog. And you can read them there. And if you would like to get proactive email alerts, you can sign up for those. It's in the Resource widget, and then you can bookmark it from there.
States do, sometimes, change the process for notifications. We've seen this recently, but also, years in the past — as you saw in the beginning, Christine and I have both worked at CSC for over a decade — and from time to time, states change the process for how they notify a client of an annual report being due. So it may be that they stop sending mail and send email. It may just be that they stop sending the mail altogether and expect the businesses to know that the annual report is due as part of their corporate compliance. So that is pretty common. And for that reason, I always encourage my clients not to rely solely on the mail. Just have some other catch-all that's tracking all of the due dates.
There's a trend with legal departments that they are streamlining their corporate governance and compliance by leaning on their registered agent for entity management technology and also annual report filings. As the registered agent, CSC already tracks core entity information, company name, file date, file numbers, due dates, status. And by using CSC as an entity management technology, it allows you to build on top of that information. And it also makes it a lot easier for us to file the annual reports on your behalf.
More states will accept electronic or alternative signature. I saw a lot of states add the ability to accept DocuSign signatures last year, which is great. It definitely makes it a little bit easier. There's also a lot of states that are now taking remote online notary for documents that need to be notarized. So, in the Resource Center, there's a link for the COVID-19 Resource Center that has all the states now taking remote online notary if you want to check that out.
If you use CSC as your registered agent, you'll gain 24/7 access to CSCNavigator. That includes the good standing calendar that we took a look at. That's fully populated as part of the registered agent service. So we determine, based on the entity type, the type of entity and other key factors, the due dates, and we fill in all that information so it's there as part of the service.
Anything that we file on behalf of a client is automatically stored perpetually on CSCNavigator, in both the Orders and Results section and on the entity level.
We provide real-time corporate entity status tracking. So each company that we're the registered agent for, we track the status of the entity, and then we populate it into a corporate tracking report. So you can see all of your registrations and their status and get proactive email alerts if there's a change, for example, an entity losing good standing or maybe something is filed erroneously, like a company name change or withdrawal.
We also send proactive email reminders for compliance. They can go to unlimited users. So you can have as many people as you like get reminders for annual reports, similar to what we do with service of process. Also, with everything we do, each user has a unique, role-based permission set so that it's very specific who you can add and what they can see and what they're able to do.
Some organizations have more complex needs because they have more entities or maybe they're operating across many different states and may need to use a technology to track their corporate governance and compliance and all those internal records, like what officers and directors associate with what companies and who can sign and what title would they use on behalf of that company. So the more structure that you have, the easier that can become, and it can also reduce risk. So CSC has an award-winning Entity Management application. We've been best of with the "New York Law Journal" readers for several years. And this system allows you to build on top of that core entity data that's in the CSCNavigator and include your signers.
You can also create reports around entities and their key details. You can digitally and securely store your minute book documents. And we just recently added drag-and-drop. So it's vey easy to get documents in. We also add an optical character recognition to every document that you import so that it becomes fully text-searchable. So it's also really easy to find documents and find that information when you need it. You can track stock and ownership, and you can also create custom org charts.
You may be thinking that you'd like to avoid the risk with these annual reports completely and get them off your plate. And in that case, CSC has an annual report preparation and filing service, which is an excellent option. One thing that clients absolutely love about this service is that we start it with a detailed, nationwide audit. So we look at each one of your corporate registrations. We determine the status and the last filed annual report. That way, if it was already done, we know not to duplicate it. If it hasn't been done or if it's past due, we can prioritize it. And we also would calendar out all the due dates.
We gather the information that we need to prepare and file the forms from the onset of service. That way, we don't have to bother you throughout the month when things are due. You can gain that peace of mind that it's taken care of. And even if you have any changes internally, there's the consistency of CSC to make sure they're done. And we do it form start to finish. We track the deadlines. We prepare the forms. We submit them. And then we upload the evidence to the CSCNavigator portal in the Orders and Results section and then also at the entity level so that you have that perpetual copy stored for your records.
And then, the invoice options are really flexible. So some of our customers will just get one invoice for every annual report that we file. Other times, we will do a monthly consolidated invoice. And we can even upload invoices to an electronic billing system.
Ciela: Thank you so much, Christine. We've included five questions so that you can perform a self-health check on your annual report practice. What assurances do you have that your organization will stay in good standing and not risk paying penalties? What is the process for transitioning annual report filings when a current person changes roles? What is your backup plan to file an annual report on time if the state website goes down on the due date? This is an unexpected thing that has happened in the past, especially in states that have many corporate entities, like Delaware, and they have an online filing tool. And it can get a lot of traffic right on the due date, and sometimes that can create outages. So just something to think about.
How do you keep track of the PINS that the states send out via postcard? So a really great way to look at your process is to find out who's getting the mail. A lot of times, you know, that's something that we've been able to help with is fixing who's getting the mail and getting it to the person who is preparing and filing the annual report.
And how do you manage and keep track of evidence of the filings? It's great to have a resource where you can quickly find the filed document, as it's a great indicator of what you may need to file for that current year.