What Is an Annual Report and Why Do Business Owners Need One?

An annual report is a document compiled by a business entity to inform stakeholders and government agencies of business operations and financial statuses throughout the year. In certain states, you may also hear it referred to as one of the following:

  • Annual Registration
  • Periodic Report
  • Statement of Information

As a business owner, you need to meet the obligations set forth by your state, and annual reports are one of them. Learn more about the importance of filing an annual report and what information they should include. 

Why is an Annual Report Necessary?

Annual reports are necessary to provide full transparency to stakeholders, including investors, shareholders, creditors, and any other interested parties. They became a requirement after the stock market crash of 1929 in order to let the public make informed financial decisions based on performance metrics and future projections.

Annual reports inform the state of any notable business changes, such as change of location, structure, or leadership. They also show creditors your ability to pay back debts as they become due.

Who Needs to File an Annual Report?

While requirements vary from state to state, you’ll almost always need to file an annual report if you own any of the following:

  • Publicly traded corporations with shareholders
  • Limited liability corporations and partnerships (LLCs and LLPs)
  • Non-profit corporations that are recognized as tax-exempt by the IRS
  • Mutual funds registered with the U.S. Securities and Exchange Commission (SEC)

Sole proprietorships and partnerships are not typically required to file an annual report as they are not formally registered with the state.

When Should I File and What Are the Requirements?

You should file an annual report every year with the Secretary of State. Due dates vary depending on your state, and they usually fall either on a predetermined date or the anniversary of your business formation.

You’ll need to submit a filing fee along with your report. Fees vary from state to state, and you can expect them to be anywhere from $50 to $400. You can view information on deadlines and fees on your state’s website.

What Should an Annual Report Include?

Annual reports vary in complexity depending on the size and breadth of your organization, but they should include at least the following:

  • Business name and address of headquarters
  • Identification numbers such as an Employer Identification Number (EIN)
  • The purpose of your business
  • Names and addresses of managers, officers, directors, and registered agents
  • Financial statements like income and cash flow statements
  • Number of shares of stock in circulation (if applicable)

Depending on your state’s procedures, you’ll either fill out a form online or print out a form, fill it out, and mail it in. 

In addition to the government-filed report, you’ll also want to include a more user-friendly report on your website with photos, graphs, and other imagery to engage viewers and make information easy to digest. These often include a letter to shareholders from the CEO for an added personal touch.

Annual Reports vs. 10-K and 10-Q Filings

Annual reports are very similar to 10-K filings in that they are both required by the state and both summarize financial performance over the course of a year.

However, a 10-K filing is only required if you hold assets over $10 million and have securities owned by 2,000 or more people — regardless of if they’re held publicly or privately. 10-Ks consist solely of numbers and data and exclude any visual embellishments or graphics. 

Depending on the complexity of your business, a 10-K could be hundreds of pages long. These filings are useful for analysts, but they’re not typically user-friendly. You can find a 10-K on the SEC website, whereas an annual report should be hosted on a business’s website.

A 10-Q filing is essentially the same as a 10-K filing, except that it’s typically less detailed. A 10-Q is also filed quarterly rather than annually. Most publicly traded companies are required to file a 10-Q.

What Happens If I Don’t File an Annual Report?

If you’re legally required to file an annual report and you fail to do so within the posted deadline, you risk being charged late fees and forfeiting your business’s “good standing” status with the state. This could make it hard to achieve financing, sell your business, or obtain registration to do businesses in other states. 

If you continue to delay or ignore filing an annual report, your business could be dissolved by the state due to its lack of good standing, and you could lose your legal protection as a business owner. This is a worst-case scenario, but it’s something to keep in mind as you’re legitimizing your business.

The Bottom Line

Most businesses officially registered with the state must file an annual report of some kind to remain in good standing. Unless you’re a sole proprietor or partnership, check in with your state’s website to ensure you meet all the requirements. If you’re ever unsure, consult with your accountant or attorney.

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