What is an LLC?
Corporations and LLCs are a business organizational structure used by business owners primarily to insulate the business owners from liability. Specifically, by operating as an LLC, business owners are able to avoid liability for the debts, obligations, and omissions of the LLC.
LLCs can be viewed as a middle ground between the corporate organizational structure and sole proprietorship or general partnership structures.
LLCs and corporations have in common that the entity, that is, the limited liability company or the corporation, is separate and distinct from the owners of the company or corporation. In practice, this means the business owners are not responsible for the obligations of the entity. Likewise, the entity is not responsible for the obligations of the business owners.
LLCs are similar to sole proprietorships and general partnerships in that they dispense with many of the formalities required of corporations, such as the need to establish a board of directors and call board meetings.
One formality that LLCs might need to comply with, depending on the jurisdiction (state) in which the LLC is formed, is a requirement to file an annual report.
What is an LLC annual report?
Many states require that LLCs file a report every year. This report is known as an LLC annual report. In some states, the report is called a statement of information. Regardless of what the report is called, it is typically filed with the Secretary of State for the state in which the LLC was formed.
LLCs are formed by filing articles of organization with the proper government office. Certain information is usually required to be included in the articles of organization, such as the persons responsible for management of the LLC and where the principal place of business of the LLC is located. Since this information can become outdated, many states require that annual reports be filed to keep the information current.
Information included in the annual report
The information required to be disclosed in an LLC annual report varies from state to state. However, the following information is generally required by all states:
- The address where the business principally operates. This address can be outside the state in which the LLC was formed.
- The current managers of the LLC. States require this to know who is responsible for operating the LLC and who has authority to make decisions on behalf of the LLC.
- The business identification numbers associated with the LLC, such as the Employer Identification Number (EIN) or TIN (Tax Identification Number) for the LLC.
- The membership interests in the LLC. Membership interests reflect the stakes or ownership held in the LLC, just like shares represent ownership of a corporation.
- The registered agent for the LLC. The registered agent is a person located in the state in which the LLC was formed and who has agreed to accept legal process (legal documents) on behalf of an LLC.
How to file an annual report
Not all states require that LLCs file an annual report. For example, in Delaware, an annual tax of $300 must be paid. But unlike Delaware corporations, Delaware LLC do not have to file an annual report.
For states that do require LLCs to file an annual report, the necessary form can usually be downloaded from the Secretary of State website. In some states, like Wyoming, the annual report can be entirely completed and filed online.
In order to prepare the annual report, the person doing the preparation needs to gather, at a minimum, the information listed above.
States calculate differently the date on which annual reports must be filed.
Wyoming, for example, requires that LLCs file their annual report by the first day of the anniversary month of the LLC formation. The Wyoming Secretary of State website makes it easy to find that date.
The fee to file an annual report varies. For example, in Nevada, the fee to file an annual report is $150. In Wyoming, the fee is not fixed, but is usually $60.
What happens if you don’t file an annual report in Delaware?
It is imperative that LLC annual reports be filed complete and on time. Failure to file the annual report on time can result in the imposition of severe penalties.
If your LLC is located in Delaware and you don’t file an annual report penalties can include the assessment of late fees and suspension of the good standing of the LLC. When a Delaware LLC is no longer in good standing, it loses the ability to, for example, open new bank accounts.
Eventually, if too much time elapses before an annual report is filed, the LLC can be administratively dissolved and removed from existence.