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Failing to File: 4 Ways Missing an Annual Report Can Hurt Your Business

Annual reports are an important part of doing business and maintaining good standing with the state, but for many business owners, it can feel like a nuisance and be easily overlooked.

Self-managing annual report preparation and filing across multiple jurisdictions comes with significant risk. Forgetting to file your annual reports in every jurisdiction in which you’re registered to do business could cost your business thousands of dollars and result in some pretty severe penalties.

What happens if I don’t maintain annual report compliance?

After missing an annual report, the first noticeable consequence is a change in your business’s good standing status—and the jurisdiction will change your company’s standing to “inactive” or “ceased good standing.” But what other consequences should you expect to face?

Late fees

The most obvious consequence of failing to file your annual report in a timely manner are assessed late fees, which vary in severity from jurisdiction to jurisdiction. Depending on the jurisdiction’s laws, late fees can be very substantial. For example, Illinois assesses fees for every month your report is late, and five-and-a-half months after the due date, if your report isn’t filed, your entity will be revoked. Wyoming has a similar system in which reinstatement can cost you over $10,000. Additionally, some states, including Wyoming and Illinois, base their fees on your financial information, which means fees can become exorbitant.

Reinstatement fees

After failing to file, a jurisdiction will revoke your company’s good standing or put it into a forfeited status if the report is not filed within a certain amount of time following the missed filing. Often, missed annual filings are not caught until the entity has already been revoked. Having a system in place to monitor the status of your entity with the secretary of state offices is incredibly beneficial to catch missed filings before they become a larger burden.

Once forfeiture or loss of good standing occurs, a reinstatement must be filed. Most states require the past due annual report and late fines incurred as well as an additional certificate of reinstatement with corresponding filing fees to restore good standing.

In the state of Missouri, to be reinstated, you’re required to obtain a tax clearance from the Department of Revenue to ensure all 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’re required to completely re-qualify your business. This can have substantial ramifications, including a new anniversary date and a new state ID number, which can affect your licensing in other areas.

Business operation impediment

If you’re not in good standing, you’re 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 won’t be able to obtain that documentation. This means your ability to conduct business is compromised. For example, you may be unable to open a bank account, as many states require confirmation that your entity is in good standing to open an account.

Loss of corporate protection

While your company is in inactive or revoked status, you don’t have the protections that come with being a corporation in good standing. For one, you’re at risk to potentially lose your company name. If another company comes along with a similar name and registers to do business in that state, inactive entities are generally not checked for name conflict. Secondly, you’re unable to bring a lawsuit.

Even with the variable rules and complexities caused by differing jurisdiction requirements, these negative consequences can be avoided. Ensuring you have the systems, support, and monitoring in place to effectively track and file all necessary compliance requirements is key. CSC can help your business stay in good standing and file your annual reports for you. Learn more about our Annual Report Preparation and Filing services here.