What Happens if You Fail to Submit Your Annual Report?

Nearly every U.S. state requires Limited Liability Companies, C Corporations, and other registered business entities to complete and file some form of an Annual Report.

Annual Reports are intended to keep state officials up to date with contact information for your business and inform them of any important activities, such as the addition of directors or members or a change of your registered agent. Some states also require information about earnings and assets.

The requirements for Annual Reports are specific to the state of formation. For example:

• The Annual Report may be called something different in your state. It may be referred to as a Business Entity Report, a Statement of Information, a Annual Certificate, a Biennial Report, or a Decennial Report.
• Most registered businesses will need to file information with the Secretary of State, however, a few states use an equivalent office with a different name.
• While many reports must be filed each year, some states require a Biennial Report, which is only filed every other year.
• Different states have very different due dates for the reports. While the filing date in Florida is May 1, it’s April 15 in Maryland, and June 30 in Kentucky. Kansas mandates that reports are submitted by the 15^th day of the 4^th month after the close of the fiscal year, while other states base the due date on the anniversary of the founding of a business.

You can find a complete list of states, due dates, and frequency in our blog post titled Annual Report List by State for LLCs and Corporations.

What If You Forget to File Your Annual Report?

Completing and filing your Annual Report correctly and in a timely manner is necessary to remain in compliance with regulations and to keep your company in good standing with the state. Businesses that fail to submit their reports and pay the associated fees could encounter fines and other penalties, or risk losing their status of good standing.

In a worst-case scenario, failing to file your Annual Report could result in your business being administratively dissolved, which means the state effectively shuts you down. Let’s take a deeper dive into what could happen if you fail to file your report.

Consequences of Not Filing an Annual Report

Consequences for not filing an Annual Report for your business – or not filing it on time – vary by state. Most states will notify you if you fail to file the report and extend a grace period for you to complete and submit it, but you’ll probably have to pay a late penalty in addition to the regular filing fee when you do. If you don’t respond to the late notice from the state and make no effort to submit the report, your business could lose its good standing status, a move that has real consequences.

Loss of Good Standing

Failing to file an Annual Report is just one reason an LLC or Corporation could lose its Certificate of Good Standing, which is a certification issued to companies that take all actions necessary to remain in compliance.

The specifics of what is necessary for a business to remain in good standing vary depending on where your business is located. Generally, in addition to filing Annual Reports, a company must take actions such as paying all its taxes, maintaining a registered agent, and renewing all business licenses and permits as needed to remain in good standing with the state.

Maintaining your good standing status is vitally important, as the consequences of losing it can be severe. In addition to fines and penalties, consider some of the problems you could encounter if your business is not in good standing with the state.

• Lose the right to your business name. If you’re not in good standing, another company could claim your company’s registered name.
• Corporate veil could be pierced. Loss of good standing could be a factor in having a court rule in favor of piercing the corporate veil, which would remove your limited liability and leave members open to being held personally liable.
• Make it difficult to secure capital. Banks and other lending institutions consider a business that’s lost its good standing status to be high risk and are likely to be unwilling to extend a loan or other financing.
• Not able to bring a lawsuit. An LLC or Corporation that is not in good standing may be unable to file a lawsuit until its standing has been restored. That could be a problem if you wanted to claim compensation due to you, sue someone for breach of contract, or pursue other legal action.
• Increase risk of business identity theft. Business identity thieves are increasingly targeting companies that are not in good standing, as they consider them more vulnerable.
• Lose the right to conduct business. An business that has been notified of loss of good standing status and makes little or no effort to regain it is at risk of administrative dissolution by the state.

The Business is Shut Down

Having your right to do business revoked by administrative dissolution is a serious action that negatively affects your ability to generate income, damages your business reputation, and often results in hefty legal fees.  Most states, however, are willing to work with business owners to avoid administrative dissolution.

The steps leading to administrative dissolution normally entail the Secretary of State’s office sending a formal notice informing a business of the violations it has committed, assessing a late penalty, and stating a deadline for the owner or owners to respond. The notice also would inform the business of additional penalties it could incur if compliance is not met.

If the LLC or Corporation still fails to take action, the state may suspend the company’s right to do business. That’s a huge problem because, in addition to disrupting operations and negatively impacting finances, it can compromise the limited liability of the company’s owners and expose them to personal risk. If compliance is not achieved during the suspension, the state may follow up with administrative dissolution of the company, removing its right to conduct business.

The good news is that states may allow a business that has been administratively dissolved to apply for reinstatement. This process varies from state to state, so you’ll need to find out the procedure for doing so where your business is based. Normally, the process would involve the following steps:

• File the report and resolve any other violations that might have contributed to the administrative dissolution.
• Pay all back taxes, penalties, and interest that have accumulated.
• Complete and submit an application for reinstatement with the Secretary of State.

Some states only allow a business to apply for reinstatement for a certain amount of time after it’s been dissolved. Also, you may not be able to conduct any business until the reinstatement process has been completed, resulting in significant – perhaps irreversible – losses for your company.

A business that does not seek to be reinstated is normally given a set period of time to wind up its affairs, which includes actions such as settling all debts and paying creditors, closing out bank accounts, cancelling business licenses, filing final tax returns, and others.

Avoiding Trouble in the First Place

As you can see, not filing Annual Reports can lead to devastating consequences for your business. Unfortunately, however, forgetting or neglecting to file the reports is not unusual and administrative dissolution occurs more frequently than you might think.

If you worry about getting reports submitted by their due date, making sure taxes are paid on time, or other aspects of keeping your business in compliance, you may benefit from the assistance of an individual or company that can assure you meet all your business obligations and remain in good standing with your state. Doing so will remove the possibility of loss of good standing or administrative dissolvement, and enable you to concentrate on the day-to-day tasks of running and growing your business.

If you do encounter the unfortunate experience of losing your good standing status or having your company dissolved by the state, it may be wise to seek professional assistance to regain status or have your business reinstated.