An accurate annual report is an indication that the financial health of an organization is in good shape. It is also important because this will remain the first point of reference for any investor looking to fund the firm. Whether you own a business or occupy an important role in it, you must know how annual reports work.
Filing an annual report is not rocket science. However, the requirements and regulations vary with every state. This article will cover everything you need to know about how to file an annual report, when to file an annual report, and what happens if you miss a deadline.
What is an Annual Report?
Annual reports, also referred to as statements of information, are used to notify the state of all the important updates or changes in your business. All corporation entities and LLCs must submit their annual reports as required by the law. These reports, true to their name, are typically due once a year. The requirements of the reports vary according to their state. While Pennsylvania only requests reports once every ten years, several states, including Alaska and New York, mandate reports being submitted once every two years.
You may also find that the annual reports go by other titles in some states. They may be called yearly renewals, annual registrations, biennial reports, business entity reports, and periodic reports depending on the state in which the companies operate. The information required is identical to what you provide when you establish an LLC or a corporation. Annual reports and other filings, such as franchise taxes, are filed together in certain cities.
Who needs to file an Annual Report?
The annual report requirements vary by state. They are necessary for some states in all kinds of company enterprises. In some cases, annual reports are not even necessary.
The following types of organizations need to file their annual reports with an authorized state filing unit.
- Nonprofit organizations
- Limited partnerships
- Limited liability companies
- Limited liability partnerships (LLPs)
These institutions must file their reports with every foreign state in which they are permitted to conduct business. Not all states demand yearly reports. For instance, neither Arizona’s LLCs nor its corporations are required to file them. In Pennsylvania, Limited liability companies and corporations must report them every ten years, whereas, in Idaho, both must file them annually.
The statements also vary from each other based on their sizes. Annual reports for small firms and LLCs generally inform the staff or members about how the company is operating and convey the management’s vision for the future. They are usually less extensive in size and scope.
Larger firms’ annual reports typically have the most stringent filing requirements. The reports typically start with a letter from the CEO or president outlining the company’s history, summarising the previous year’s operations, outlining the company’s revenue and loss perspective, going over the company’s short- and long-term goals, and praising the outlook for future growth and prosperity.
Importance of filing an annual Report
Any public organization needs to distribute an annual report to its shareholders as an important financial document. Potential investors and financial experts use them as their main source of accounting data when assessing a company’s current stock price. An organization’s annual report provides a general review of the business for the previous fiscal year. It aids the general public in estimating the financial stability of an organization for the near future.
There are many ways today to secure the financial data of a company because of today’s accessibility to social media and the internet. However, Annual reports are still the business’s tool for informing all parties involved about its accurate financial situation and transactions throughout the previous year. Although the firm’s financial statements may aid in its fundamental overview, the report is a comprehensive analysis of the organization.
Additionally, it will offer the necessary justifications from the management and auditors for other crucial areas that are not covered by the financial statements. It contributes to building investor and shareholder confidence in the business in securing its long-term advancement and expansion.
Preparing and Submitting Your Annual Report
Now that you know how annual reports work, you might be wondering how to file an annual report. Ensure the availability of every necessary document and compile the data concerning significant events or updates of the company before you begin.
How to prepare the Report?
The data that must be included in an annual report varies by state. The minimum requirements are usually outlined in the corporate entity statutes. The filing authority has the power to demand additional data to help with the filing. However, typically the report must include:
- Business name and objectives
- Primary address
- Postal address
- Registrar and place of business
- Names and Identities of directors, officers, managers, or members
- Issued stock
- Verified signature
You can begin by preparing your Business profile. It includes key facts about your company such as the mission and vision, investor profiles, and competitor analysis. It is important to remember your objectives when writing this section like swiftly offering new, existing, or potential investors to understand your firm and sector at a glance.
Then, compile all the data regarding the company’s operational and financial insights. This includes Income statements, shareholder statements, cash flow statements, and balance sheets. You can also include other highlights of the year such as new product launches or new partnerships and contracts.
The next step is to record your Management Discussion and analysis. Adding these details will let you provide internal insights about the company finances. This section mainly includes the difficulties faced by the company like compliance issues and emerging risks. Make sure that the structure is compliant with the FASB (Financial Accounting Standards Board) regulations.
The CEO, Chairman, or any managing body of the company should write a letter addressing the shareholders. This will cover all the financial and operational activities of the year and is an important step in filing your annual report.
With all the relevant data and documents in place, filing annual reports can be done either online or in paper form. Online filing is the only way to submit your reports in certain states, especially Colorado and Idaho. However, in most cases, you can download the form from your state’s business portal website. If you find the filing process overwhelming or need more clarity on it, you can seek an expert service provider for assistance.
You will be required to pay the filing fee along with the form submission. The cost varies for every state. For example, some states pay around $20 while certain others pay up to $500 for filing. Once you file the yearly report, some states insist that you pay franchise taxes or other company taxes in addition.
Common Mistakes to Avoid
Companies that do not comply with the annual report obligation face penalties from the states. It may result in a variety of adverse impacts, such as losing your reputation or your business. Further non-compliance can lead to the dissolution of a corporate body and the termination of the right to conduct business as a foreign company. This may entail the loss of the many advantages of being an LLC or corporation and ultimately lead to financial loss.
The due date for annual report filing is by the end of the registration month’s anniversary.
For example, if your LLC or Company was registered on the 10th of May, your filing is due by the 31st of May. If you miss the deadline, your company can be penalized.
Also, you risk losing the brand status with the state, which might restrict your access to funding. Many lenders and financing sources demand that you retain your brand status, as well as expect proof that the company is in good form. An organization must continue to report even if it no longer conducts business there until it legally retracts from the region.
A careful filing process is recommended for annual reports. Some incorrect information can lead to penalties or delay in the filing process. For example, entering inaccurate data, making payments through wrong methods, paying an inaccurate fee, and forging signatures fall under incorrect information. This may lead to the rejection of reports.
Failing to Report Changes
You are required to update any changes regarding the company, on your annual reports. These changes include the addition or deletion of a director, board member, or chief operator. If your prime branch location is changed, operational activities take a new course, or policies are updated, they must be notified promptly. Failing to do so will also result in penalties.
Need Help With Annual Report Filing? Contact IncParadise for Assistance
It’s easy to overlook submitting your yearly report. Make a note of the deadline for your upcoming report on your calendar every time you work on the current year’s report. The person in charge of compliance must take all reasonable measures to ensure accurate and timely filing to avoid harsh penalties.
Although submitting an annual report is not difficult, keeping track of deadlines and standards may be challenging, particularly if you conduct business in multiple states. This is why you must work with a professional service provider. At IncParadise, we offer customized filing services no matter what your business needs are. We also assist with filing with the IRS, bookkeeping, and much more. Also, it is mandatory in every state in the United States for a corporation or limited liability company to have a registered agent. We can be your registered agent in all 50 states providing physical addresses approved legally within a jurisdiction, starting at just $89 per year. Give us a call right away if you want to know more! Our experts will get in touch and aid you at your convenience.