Staying compliant with annual requirements is important for maintaining your entity’s good standing and avoiding costly penalties. Each year, business owners must complete a set of compliance tasks. When handled consistently, these tasks help the company maintain its legal protections and prepare it for growth, financing, or perhaps an eventual sale.
What Are The Annual Requirements for Corporations and LLCs?
Corporations have the strictest internal requirements. Corporations should hold initial and annual director and shareholder meetings, record their meeting minutes, adopt and maintain bylaws, issue stock to shareholders, and record all stock transfers.
LLCs have less strict internal requirements. However, they are generally advised to maintain an updated operating agreement, issue membership interest, record all membership interest transfers, and hold annual meetings.
Other business structures have few, if any, internal requirements. However, it’s rarely a bad idea to document important decisions for your business. (SBA.gov)
Business entities typically must submit an Annual, Biennial, or Periodic report to the filing office in their state of formation and any other states where they are authorized to do business.
Annual compliance consists of numerous items, and failure to comply may result in penalties, fines, or involuntary or administrative dissolution.
- File annual reports. Annual reports serve as updates or confirmations of your company’s profile and can include, depending on the state, its address, registered agent, and members or managers.
- File Tax Returns. Businesses must also meet federal, state, and local tax filing obligations, which are typically separate from annual or biennial report requirements.
- Annual Meetings/Minutes. Most states do not legally require LLCs to hold annual meetings or to keep formal minutes, but it is a good practice to do so.
These to-do items can be challenging for small business owners, as larger entities may have an internal general counsel or legal department.
What Are Annual Reports?
Many states require annual report filings to be submitted to the Division of Corporations or the Secretary of State in the state where your business is registered. An annual report is a basic informational filing that confirms or updates the entity’s details, such as the legal name, principal address, registered agent, and owners or officers. It is typically filed separately from your tax returns and other annual requirements. The due dates vary by state. Missing the deadline can result in penalties for the entity, loss of good standing, or even inactivity or involuntary dissolution.
Annual Meetings and Minutes Are Important Formalities
A corporation’s annual meeting is a mandatory event that ensures legal compliance, during which directors are elected, financial results are reviewed, and votes are taken on major company decisions. This requirement applies to all corporations, not just public entities; all types of corporations, regardless of size or whether they are publicly traded, are generally required to hold these meetings to sustain their legal status. The meetings usually occur after the end of the fiscal year.
Annual meetings and minutes for LLCs are not typically required by law, but they play a crucial role in documenting important changes, plans, and decisions that shape the LLC’s operations. But it is common for LLCs to hold annual meetings to review financials and discuss the members’ roles and responsibilities.
Unlike corporations, which need to hold annual meetings of the board and shareholders, LLCs have more flexibility. Their operating agreement can waive these requirements, allowing owners to run the business without formal meetings or record-keeping if they choose. This is common when an LLC is formed with one member.
Purchasing a corporate kit when forming your LLC ensures you have the proper documentation and forms for completing annual meetings and minutes.
Keeping Your Recordkeeping Current
Keeping thorough, precise records is important to ensure your registered agent and company details are always current and accurate. The registered agent provides your company with a physical address within the state at which your company can receive service of process and any state tax and annual report filing notices.
Your LLC or corporation should maintain organized files of key documents, including contracts, formation papers, operating agreements or bylaws, and meeting minutes. It is important to have these handy in one place in case of audits, lawsuits, or due diligence requests.
Consequences of Noncompliance and How to Get It Back
When a company is involuntarily dissolved, it loses its legal standing due to failure to file reports, pay taxes, or maintain a registered agent, requiring immediate steps to reinstate with the state or wind down. Involuntary dissolution does not eliminate debt or potential personal liability if personal guarantees were in place.
The longer these items go unresolved, the longer the business will stay in bad standing. If the necessary paperwork is not filed or fees are not paid, the state may involuntarily dissolve the business. Should this happen, the owner may be able to get the business back into good standing with a business reinstatement. (SCORE.org)
Reinstatement is possible, in most states, after involuntary dissolution and can restore an inactive or non-compliant entity to good standing. Not all states allow this, and some specifically restrict entities foreign-qualified in the state from reinstatement; they must requalify. It is also worth noting that there is a time limit. If they wait too long, the name may no longer be available for reinstatement under the same name.
In addition to submitting your business reinstatement application, the Secretary of State may request additional documents, such as a letter of good standing or a reinstatement packet, to report any changes to your business.
Complying with Annual Requirements Doesn’t have to be Hard
Once you understand the basics of what needs to be done: filing your annual report, holding and documenting the annual meetings, keeping records organized, and ensuring your registered agent information is current, it becomes very manageable instead of stressful. Annual calendar reminders will help you ensure your record-keeping is up to date.
Accumera provides your company with a physical location at which your company can receive service of process and any other legal, tax, and annual report filing notices. Contact us to help you stay compliant, assist in a reinstatement if needed, and serve as your registered agent to avoid future compliance concerns.
