Certain types of businesses must file an annual report, which outlines a company's financial activity and its operations. Many people assume that annual reports are for publicly traded companies, but certain private companies may file one as well. Learn what's included in an annual report and the common mistakes you should avoid when filing one.
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What is an annual report for a small business?
An annual report is a comprehensive document outlining the company's operations and financial performance over the past year. It typically includes the following:
- A summary of general business information.
- Annual performance highlights.
- The CEO's letter to the shareholders.
- Management's discussion and analysis.
- Financial statements, which can include a balance sheet, an income statement, and a cash flow statement.
- Supporting notes, photos, and graphics.
- An auditor's report.
- Financial information summary.
- A review of accounting policies.
Privately owned businesses aren't required by law to file an annual report with the U.S. Securities and Exchange Commission (SEC), but it can be useful to do so. An annual report can help management assess where the company is at and plan for future growth. It's also a good way to maintain transparency with investors or stakeholders.
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State filing requirements
If your business is set up as a limited liability company (LLC) or a corporation, you may have certain filing requirements that you are required to meet with the state where your business was formed. It's important to check with your state's business department to learn what the filing requirements are.
Depending on the state, you may need to submit an annual report or biennial statement and pay a statement fee or franchise tax when filing. State-required reports tend to be smaller and more company-focused than SEC report requirements, which require financial information, including audited reports. State-required reports usually include the following information:
- Your company's name and address.
- The purpose of the business.
- The names and addresses of a corporation's directors and officers.
- The registered agent's information.
- The names and addresses of LLC members or managers.
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It's not enough to simply file an annual report — it's imperative to submit a report that is error-free.
Common mistakes when filing annual reports
It's not enough to simply file an annual report — it's imperative to submit a report that is error-free. Here are some common mistakes to avoid when filing an annual report:
- Missing the deadline: Missing the deadline can result in late fees, penalties, or even having your business entity dissolved. Business owners can avoid this by setting alerts to remind them of the various filing deadlines.
- Incorrect information: Incorrect information, like the wrong business address or misstating the names of certain officers, can lead to communication problems with the state. Double-check your annual filing to ensure that all the information is correct.
- Missing information: Another common mistake is forgetting to include certain information or not signing or dating the report. The best way to avoid this is by ensuring the filing form and report are completely filled out.
- Fee errors: Finally, it's easy to forget to pay any required fees or to pay an incorrect amount. You should always verify the fee amount with the state before filing an annual report.
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What happens if you don't file an annual report?
Neglecting to file an annual report with the state can result in various consequences for small business owners. The severity of these consequences varies depending on where you live, but most businesses can expect to get hit with a late penalty. If you pay the late penalty and submit your report immediately, this should take care of the problem.
But if you continue to neglect your filing requirements, the state could revoke your good standing or your right to do business. This means that in the eyes of the state, your business no longer exists. If that happens, your business could lose its limited liability protection, and your personal assets would be legally exposed in the event of a lawsuit.
And if your business is in poor standing with the state, it also affects your credit rating and ability to secure financing. So it's best to never ignore notices from the state and always meet your annual filing requirements.
This article was originally written by Jessica Elliott.
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