Annual Report Requirements

What You Need to Know to Maintain Good Standing

We know that self-managing annual report preparation and filing across multiple jurisdictions comes with significant risk, but it doesn’t have to be that hard. Serving as an ideal introduction into filing annual reports and an excellent refresher for the seasoned professional looking for a more efficient process, “Annual Report Requirements: What You Need to Know to Maintain Good Standing,” will cover:

  • Deadlines and requirements
  • Consequences of not filing and missed deadlines
  • Handling international entities
  • Common challenges with annual reports
  • Real life examples of annual report filings
  • How CSC’s Annual Report Preparation and Filing service can help you

Slideshare


Annual Report Requirements: What You Need to Know to Maintain Good Standing from CSC

Webinar Transcript:

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're currently not on CSC Global, there's a link to the website in the description of this video. Thank you.

Annie: Hello, everyone, and welcome to today's webinar, "Annual Report Requirements - What You Need to Know to Maintain 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 Corporate 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 and quality ops analyst on the Annual Report Service Team based at CSC's global headquarters in Wilmington, Delaware. With over eight 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. Thank you, Annie. And thank you to all the attendees for joining us today. I wanted to start by telling you a little bit about CSC. First of all, as part of our culture, the security and stability of our systems are top priority. We have over 2,500 worldwide employees servicing 180,000 businesses from entrepreneurs through our incorporate.com website up to 90% of the Fortune 500 are using CSC. We work with law firms all over the world. We have over 3,000 financial institution clients using us for Uniform Commercial Code in real estate document recording. Sixty percent of the 100 best global brands use CSC to protect their brand online, from registering their domain to cybersecurity services like DNS and DDoS protection. As I mentioned, security and stability is our top priority. And to that regard, in the resource widget, you will find our Security and Availability statement is attached.

On to the agenda and what we're going to go over today. So we're going to talk about what an annual report means. And in reference to our discussion, we're going to talk about filing and reporting deadlines, requirements by state and entity type, consequences of not filing, differences between a business license, which is more industry specific and location specific, versus an annual report, which is more specific to the state and entity type. And then, reasons to outsource annual reports to a vendor like CSC and the benefits that are specific to us.

So starting with "What is an Annual Report?" So today, we're talking about secretary of state compliance. And that annual filing and sometimes it's biennial, that you need to file to maintain an active corporate registration. We're not talking about the annual report that goes to shareholders with a company's financial performance. We're talking about the annual filing to the secretary of state to keep the corporate registration in good standing.

And here on the slide, you're going to see some examples, like, the California Statement of Information, the Nevada Annual List, a lot of states call it a franchise tax, or an occupational tax report. And these vary depending upon whether the company is a corporation or an LLC. It also varies on whether the registration is domestic or foreign. And for purposes of the conversation today, if we say domestic, we're talking about the state of incorporation. And if we say foreign, since we're really just talking about U.S. compliance within the 50 states in D.C, when we say foreign, we're talking about the qualification state or the state where an entity is already incorporated it's just registering in a second state or a certificate of authority, it's often called.

And requirements do vary based on not only is it a corporate or an LLC, but is it a domestic state, or is it a foreign state? For example, in California, corporations are going to file every year, whereas an LLC gets to file every other year or biennially. And some other things kind of just throw in the mix to kind of explain the complication is we give an example of the Nevada Annual List, which is something that you file, but then on top of that, it also has to be published in a newspaper of general circulation. So we'll be getting into that in more detail. Also, in the resource widget, you'll see a chart of annual report requirements by states, which will break it down into a chart.

Christine: So now that Ciela has taught you a little bit about what an annual report is, the next question is when our annual reports due? And the answer is it varies from state to state, from jurisdiction to jurisdiction. There's a couple of different categories that these tend to fall into. States may base the due date on your fiscal year end, and we'll get into that more in just a moment. It may be based on your anniversary month. Basically, the anniversary of when you first registered to do business in that state by filing your certificate of authority. It may be based on your anniversary date, which is the actual date you filed, or it could be on one day annually as determined by the jurisdiction. So some examples of these would be Florida, Delaware, Kentucky, Maine, Maryland, West Virginia. These are all due on a state designated by that jurisdiction.

Anniversary month tends to be by the last day of your anniversary month, which is the case in Idaho, Nevada, New Jersey, Washington, and Virginia. Wyoming is an outlier. That is due the first day of your anniversary month. Some anniversary date states are Arizona, Louisiana, Oregon and Utah.

And then the fiscal year end is determined not on your fiscal year end, but the due date is based on when your fiscal year end is. Most states say they're due the 15th day of the third month following your fiscal year end, which for calendar fiscal year end translates to March 15. Some of these states are Kansas, North Carolina, Tennessee, and Vermont.

Ciela mentioned a moment ago that some states do file biennially, meaning every other year as opposed to annually. These states fall into these four categories, as well. They may be fiscal year end, it may be a date assigned by the jurisdiction or it may be based on the anniversary date or month. So D.C, Indiana, New York, Nebraska, Iowa, New Mexico, are all biennial filings. Once again, some of these states it varies depending on your entity type as well, and whether you're foreign or domestic.

So now that we've talked about what a report is and when it's due, what happens if the report is missed? The very first thing that's going to happen most likely is there's going to be a change in your status. Once the report is late, your status with the jurisdiction is going to change from active or good standing to inactive or ceased good standing.

The next thing is that once your report is late, most jurisdictions are going to assess some type of late fee. These late fees can be very substantial, depending on the jurisdiction. Illinois assesses an additional late fee for every month your report is late, and five-and-a-half months after the due date, if your report is not filed, your entity will become revoked. Wyoming reinstatement can be over $10,000 if you fail to file your annual report. And a lot of times, Wyoming and Illinois both base their fees on your financial information, and there can be substantial fees with both those jurisdictions.

Another example of something that can occur when a report is missed is with the State of Missouri. If you need to reinstate, the state of Missouri requires that you obtain tax clearance from the Department of Revenue to ensure that all of your taxes are up to date and current. If you're registered in Utah as a foreign entity, the state of Utah does not have a statute that lets you reinstate. You, actually, have to re-qualify your business. This can have substantial ramifications as this will result in a new anniversary date, and you will also be assigned a new state ID number, which can affect your licensing in other areas.

So you didn't file your report, now what happens? What are some of the consequences? As I just mentioned, there's a loss of good standing. Your status will immediately change in most jurisdictions from good standing or active to possibly ceased good standing or inactive. It varies jurisdiction to jurisdiction, the terminology that they use.

After a certain amount of time, if the report is not filed, the jurisdiction will revoke your company or put it into a forfeited status. Once this occurs, a reinstatement must be filed. Most states require the past due annual report as well as an additional certificate of reinstatement and additional fees.

While your company is in this inactive or revoked status, you don't have the protection of the corporation. You have potentially lost your company name. If another company comes in with a similar name and registers to do business in that state, inactive entities are generally not checked for name conflict.

If you're not in good standing, you are unable to obtain a certificate of good standing for the secretary of state. Certificates of good standing are used for a variety of reasons in your daily business operations, and if your reports are not current, you will not be able to obtain that documentation.

You also have the inability to bring a lawsuit. When you don't file your annual report, you are not following the state statute to keep your company in compliance. And as such, you do not have the benefits of having a corporation. It may also affect your ability to conduct business that can be compromised. And you may incur penalties, fees and interest as we discussed previously, such as Illinois and Wyoming. You also may be unable to open up a bank account as many states require confirmation that your entity is in good standing in order to open that account.

Ciela: Thank you, Christine.

Christine: You're welcome.

Ciela: So I know some attendees they wanted learn more about the U.S. territories, Canada and jurisdictions outside of the U.S., so I want to talk about it a bit here. The U.S. territories of Puerto Rico, the U.S. Virgin Islands and Guam all have an annual report requirement. They are some of the more complicated ones for various reasons. For example, Guam doesn't mail a reminder, so it's just on the onus of the business to calendar out that date and know that it's due between July and September 1st each year.

Puerto Rico is another example. To file an annual report in Puerto Rico, the filing fee is $150. However, if you are one day late, there is a $750 penalty. So that is one reason why a lot of clients will push these reports to the CSC responsibility just to reduce their risk of having to calendar out the dates separately or a heavy penalty.

In Canada, many of the provinces do have an annual report requirement. Not all of them, but most of them There's also some variants in what's required depending on whether it is a domestic Canadian entity or an extra-provincial filing. An extra-provincial filing could be a U.S. company that's just qualified to do business in one of the Canadian provinces or maybe a domestic Canadian registration to one province, but has qualifications in multiple provinces, so they have extra provincial registrations that do require an annual report and you'll see that in most of Canada.

Now, when you get into other countries, saying something like an annual report is an oversimplification. And I don't want to do that at all, especially when we're focusing on the U.S. today. Some countries do have something similar like an annual filing of accounts, but that really is a conversation for another time and if you do have questions about international entities and their annual filing compliance requirements, you can, certainly, request that someone follow up with you at the end of the session. We provide services in over 140 countries around the world and it is something we can answer for you, but we're not going to get into too much detail with that today just because it varies so much.

I know there's also a lot of people on that wanted to learn more about business licenses. And there is a lot of crossover because this is part of a business's compliance. With annual reports, we're focusing on things that are due to the secretary of state to keep that corporate registration active and in good standing. So these are usually going to depend on the type of company whether it's a corporation or LLC, the date it was registered, and is it a domestic state or a foreign-qualified state?

Business licenses are quite different. They are going to be more highly regulated where a business has a physical presence, actual, you know, brick and mortar locations. Often, the city and county will want something on top of the corporate registration being in good standing. They'll also want a local business license or permit. So these are usually on top of the annual report filing, but they need to happen. They're also driven by the location, and they also are industry specific. So what a restaurant needs is different from what a contractor needs is different from what a warehouse or a laboratory needs. It varies greatly depending upon the activity, the location and the employees.

So it's also a service CSC provides if that's what you were interested in learning more about, I'll cover some resources in the demonstration later. And I'll also remind everyone at the end that they can request more information on that.

Christine: All right, so getting into the question of outsourcing the annual report, and there's lots of good reasons to do this. As we've gone over, there's tons of complications to get it done, just even around the due dates and when things are due. There are many states that no longer send notifications on it. You know, it used to be that most of the states did. There's been a lot of budget cuts, states aren't doing it anymore. Sometimes they do it. Sometimes they don't. Sometimes they have really short turnaround times. You'll get the letter just the same week it's due. So that's why we did build that calendar and we encourage our clients to use that and use their emails and the calendar as a catchall and not necessarily rely on what comes in the mail.

One of the things that CSC does is we track legislation changes, and things do change with annual report due dates, so if you're going off of a spreadsheet that you made a few years ago, there could be things on there that are out of date. If you'd like to know more about how we track those legislation changes, Annie included in the resource widget a link to our blog. All of the legislation changes we post there, our webinars are posted there. Also, if you have important filing dates, we will post when state offices are closed due to weather, holidays, and things like that. So it's really handy when you're working with tight deadlines or if you're doing these on your own and you need a way to track when these statues are changing.

Of course, it helps in avoiding paying reinstatement fees and penalties. People are doing, you know, more work than ever, various different jobs, annual reports may just be part of it. And that can be a risk and it also saves time and also can just fill that need when there's not anybody to do them.

So some benefits to using our annual report prep and filing service. If you do decide that is a service that you would like, one of the first things we do is an audit of your current entity portfolio. We go out and we check the status of all of your entities and all of your jurisdictions before we even start filing. This can help us identify any entities that are in a negative status, and that will let us help you get those entities back into good standing as soon as possible. Potentially, it's just an annual report is late and you're in a delinquent status, we just need to file that report to bring you current. You may be revoked or forfeited in a state and it may need a reinstatement. If that's the case, that is something that CSC can assist with as well.

One of the other benefits is that we update our entity management solution with your entity data. The way our service works is we ask you to provide us some basic company information for each of your entities. And with that information, we proactively file your annual report. Most states have moved to online filing, so we don't need to be sending forms back and forth to you for signature. We ask you for basic company information, such as your business address, your fiscal year end, which is very important because that determines when some of your reports are due.

We ask for your officer and director information for corporation, your members and managers, if it's an LLC. We also need to know other information, such as a brief statement of purpose, for example, real estate investment, a couple words describing what you do, not your whole mission statement. For corporations, we also ask for your basic stock information, your total authorized and issued shares. We don't need necessarily shareholder information or breakdowns of that, but just those total numbers.

From this information, we're able to proactively file most of your annual report. There are some states, however, that do require some additional information. And in that case, we will be reaching out to you for those states-specific requirements. We can also identify which of your entities you're going to be managing in-house and which will be CSC managed. Ciela demonstrated column when she was showing you the compliance calendar in CSC Navigator.

We do have lots of clients who choose to maybe keep one or two jurisdictions managed in-house. There are a couple of states in which the annual report is tied to your income tax return in that state, specifically Alabama and South Carolina. While CSC can assist with the preparation of just the annual report portion of that document, the tax portion of that document, it's still your responsibility. We can submit the filing on your behalf, but we have many of our clients choose to keep those jurisdictions in-house just due to the tax nature of the filing.

We do file documents and they're prepared in advance of the due date. We generally work about two months in advance. So right now it's mid-May. Right now, we are working on filings for July. We are preparing and sending those emails out to our annual report customers, letting them know what we'll be filing, what they have coming up, and requesting that additional information.

West Virginia is my favorite example of a state that needs additional information. In addition to the officers and directors and the business address, West Virginia also asks, "Are you a scrap metal dealer?" And if you answer yes, they have a bunch of follow-up questions. So what we do every month is we take a look and see what you have coming due for that month, we send you out a spreadsheet listing out your entity names and jurisdictions. And in the last column of that spreadsheet, we request any jurisdiction-specific information we may need, like, West Virginia. We ask you to provide us that information and then we will go ahead and complete the filing on your behalf.

Once the filing is completed, all evidence, all filed annual reports, are saved in your portfolio on CSC Navigator. CSC does also advance the state fees for the annual reports on your behalf. There is one caveat, it is up to $10,000. If the filing fee exceeds $10,000, which it can in states where the filing fee is based on your financials, such as Illinois and Wyoming and also Wisconsin, or Delaware, corporations the maximum tax is $250,000, we will reach out to you well in advance of the due date to arrange payments of that.

We also have a variety of invoicing options to fit your workflow. We can send you invoices as we complete each annual report filing, we can send it with your evidence, or we also offer summarized options that can be sent to you once a month.

As we mentioned, your file documents are available on your access web portal and CSC Navigator. You have access to both the evidence and your invoices 24/7. The Good Standing Calendar, the Compliance Calendar that Ciela demonstrated for you, it's fully integrated with our service. So what that means is that you can look at your filings and you can see what's due and where, as Ciela showed you, how you can manually change that status to filed, if it's something you completed yourself. If we're handling the filing for you, it's updated automatically in real time.

You can see the status go from "blank" to "In progress" once we upload the orders in our system. So right now all the July requirements, all the July filings, are starting to show "In progress." As we proceed with filings, you'll see them move over to "Filed." If it is a state like West Virginia where we need additional information, it's going to have a status of "Document not submitted." And that's a clue to you that you do need to provide us something in order to complete the filing.

As I said, filed documents are stored there, and this is updated live as we complete the filings. And you will have a dedicated annual report team to provide you with peace of mind. You will be assigned an annual report specialist, who is your main point of contact. They'll be sending you an email monthly to let you know what filings are coming due in the near future and also requesting additional information. They are your point of contact. If you have any questions or concerns about the service, maybe you get a piece of compliance mail and you're not sure what it is, if it's something that we're handling, feel free to reach out to us and we can confirm, "Yes, we're taking care of that for you." Or, "No, that's actually a tax filing or that pertains to your business license," and let you know it's something you need to take care of.

And now I'm going to turn it back over to Ciela.

Ciela: Perfect, thank you, Christine. And that, actually, reminded me on that last slide about getting a piece of mail and not knowing what it pertains to. We're actually seeing a rash of compliance, what looks like compliance mail going out to our clients, and it appears to be a letter from a government office or secretary of State that's requiring some sort of annual report.

And sometimes, it is a state that requires an annual report. But if you look at the fine print, it's just a company logo and a different vendor, trying to get you to use them to file your annual requirement, and they're just making it look like a secretary of state official notice. So if you ever see anything, and you're not sure, you can reach out to the CSC customer service team, or your account manager here. We're happy to review it for you. We see them quite a bit. So we're good at kind of picking out the real ones from the not so real.

So I wanted to get into the sixth questions to evaluate your process. So this may just mean starting with who is doing the annual report. We often see it being the legal team. It can often be the tax team. It's often a mix of both. So on top of the slide, maybe just figuring out who's doing what and then, what assurance does your annual report process offer the organization? So is there a process? Is someone tracking legislation? Is it clear who's doing what? Is there a budget for missed penalty or missed filings and then subsequent penalties? Is there a process for transitioning the annual report if someone leaves the department? We often see people struggle with that point and things get missed in the crossover. So that's a kind of a good backup plan to have in place.

And then number four, what is the plan to file an annual report if the state website goes down? I really only see this in Delaware. And Delaware website is, actually, just fine and dandy. However, there are so many Delaware corporations and LLCs, and so many national procrastinators, that everyone waits till the last day to file their annual report in Delaware. And you know, if it's a corporation, it's due March 1st, so if everyone waits till, you know, the end of February, the state will sometimes experience outages just because there are so many other people on at the same time.

So if you are keeping your annual reports in-house, and you do have Delaware, which a lot of people do, sometimes it's better to get them in a couple of weeks early so that you don't have to experience those outages that, you know, everyone is trying to hold on to their funds as long as possible, but we do see that a lot with Delaware.

Something else to think about is tracking the postcards that come from the state. We did talk a little bit about how relying on mailed notices is not the best plan and that using the Compliance Calendar and the email alerts are really a better catchall, because some states don't mail anything.

There's also this kind of new thing where states are sending a pin for privacy purposes. So taking a look at who gets those. Sometimes I see kind of a problem where it's somebody too high up who's getting them, maybe it's the general counsel or a CFO, but they're not the one, actually, you know, in the trenches, preparing and filing the annual reports. And sometimes, things like a postcard like that can sit on someone's desk too long and create a problem.

So what I normally recommend to my clients is whoever is, actually, preparing and buying and filing the annual report, make them the primary contact for things like the postcards. And if the general counsel or CFO wants to be a backup and get the email reminders, that's great. It's an excellent way to make sure that things are getting done, but maybe not making them the primary contact for the mail. So if you do want to change that, you just reach out to your CSC representative and we can update that very easily. You have unlimited users and you have unlimited compliance contacts, so those email reminders from multiple people.

And then also managing and tracking the evidence, so putting a plan in place for that. Very handy to know where your filed annual reports are being stored. If it's in an entity management application, like CSC? Is it shared folders? Is it just email? What's the plan for that? It can often be handy to have a copy to prove that it was filed, so setting that up as a safeguard.