In the United States, there are a few different options when it comes to choosing a business structure, and a Limited Liability Company is one of them. An LLC provides the ultimate protection for a business owner because it separates the business as its own legal entity.
Although LLCs are similar to a combination of a sole proprietorship and a corporation, an LLC offers other benefits as well. With benefits, comes responsibility, and one of those responsibilities in the LLC annual report.
What is an LLC Annual Report?
Each year an annual report is a document that must be filed by an LLC. It should detail the company’s activities throughout the prior year. Annual reports are intended to give state governing authorities information about the LLC. Included in the annual report will be the names and addresses of managing members of the LLC.
You should also include the company and registered agent address. This is important because it essentially declares who you are as a business to the government, as well as who intends to collect important information for the business (the registered agent).
Information Included in the Annual Report
- Company Address: This should be in the state of Delaware, and explain where business activities will be performed out of.
- Managers: Another name for the owners, all managers should be listed on the report.
- Purpose of Business: Whether you sell products, or provide services, you should include this.
- Business ID numbers: If you are a single-member LLC this might be your social security number, but otherwise this will be your EIN.
- Shares issued by the company: This essentially states who owns the company and if shares are owned, as well as in what percentage.
- Registered Agents: Your registered agent has a physical presence in the state of Delaware. They will receive important notices and tax documents on behalf of the LLC during business hours. This is incredibly important to have in your annual report.
How to file an Annual Report?
Once you have completed the form, you will be required to submit it to the state of Delaware. Although it varies from state to state, typically you will be required to pay a filing fee. There is actually no filing fee in the state of Delaware, but there is a separate $300 annual tax.
The annual tax can be paid on the Delaware Division of Corporations Website. It is important to note that there is a $200 late fee if you miss the June 1st deadline. Interest accrues at a rate of 1.5% on the tax and late payment.
What Happens if You Don’t File an LLC Annual Report?
Failing to file an annual report can have significant consequences for your business. If you have failed to file an LLC annual report, then you will need to act quickly.
Late Penalties
In the state of Delaware, there is a $200 late fee for missing the June 1 deadline. This is basically a warning and means that you need to file your annual report as soon as possible. Typically you will then be given a second deadline before the state takes any further action against your business.
Loss of Liability Protections
Probably the most dangerous part of not filing your annual report is that you will lose your loss of liability protection. This may have been the original reason you formed the LLC, which means that you will become vulnerable to lawsuits and creditors. Whatever exists and happens in the world of your business, the liability can then be placed back on to you.
Administrative Dissolution
If you continue to wait to pay your annual fee, then you will typically be placed into bad standing with the state of Delaware. The result of this is that your business will be administratively dissolved. When you lose your good standing, it can result in a struggle to get financing and even difficulty establishing contracts with other companies and services.
Administrative dissolution can also prevent you from expanding your business into other states, as you may require a certificate of good standing to register as an out-of-state business. Once you have been given an administrative dissolution you will not be able to operate in Delaware well, until you get your business reinstated.
File Your Report on Time
Filing your LLC Annual Report on time is essential. If you do not, then you will be fined, be put into bad standing, and the state will administratively dissolve your LLC. This is an easy thing to avoid. Pay your annual fee and file your report on time. Do not take this lightly.
Written By
Jonathan is admitted to practice law in Colorado and Wyoming. In this position, he helps business owners at nearly every level and in nearly every industry with asset protection, estate planning, and business formation. Beyond business owners, Jonathan also helps activists of all political persuasions to legally protect themselves.
