By Jennifer Friedman
More than 2 million Florida small businesses—every LLC, corporation, limited partnership and limited liability limited partnership—must file annual reports with the Florida Secretary of State’s office by May 1, so that they may remain legal entities and compliant with state regulations.
Florida, along with most other states, requires its businesses to update their basic information annually—such as the principal business location, officers’ names, and the name and address of the business’s registered agent. The annual report is not a financial statement. It is used to update or confirm state records and must be filed each year—regardless of whether business owners need to make any changes—for the business entity to maintain an “active status” with Florida’s Department of State. Out-of-state businesses that have registered to do business in Florida must also file annual reports.
While annual reports may seem like a hassle for a busy business owner, they serve the important purpose of keeping a company on record with the necessary government agencies. Business owners, wearing many hats, may forget to file these reports, and unfortunately, there are ramifications if this happens.
Late filing fees
First, businesses in Florida who file late are hit with a $400 fee. This penalty is automatic and cannot be reduced or waived. While fines can be a thorn in the side of any business (especially small, cash-strapped businesses), there are more serious potential ramifications when it comes to forgetting to file your annual report.
Administrative dissolution and personal liability
If a company’s failure to comply extends for a long enough period of time, the state may move to administratively dissolve the company. While most states will administratively dissolve an entity that fails to file annual returns, few have timelines as definite as Florida. If a Florida business does not file an annual report by the third Friday of September (September 18, in 2015), the state will administratively dissolve or revoke the registration of the business entity at the close of business on the fourth Friday of September (September 25, in 2015).
A business that has been administratively dissolved cannot carry on any business activities—other than winding up the company’s affairs. Administrative dissolution also removes the legal shield that protects an owner’s personal assets from business creditors. This means that the business owner(s) become personally liable for business debts and judgments incurred during this time—effectively negating one of the most important reasons a business incorporates in the first place.
Jeopardizing the business
In addition, failing to file your annual report also forfeits the company’s “good standing” with the state, which can jeopardize expansion plans and financing opportunities. If a business can’t provide a Certificate of Good Standing (in Florida, officially a “Certificate of Status”), it raises a compliance “red flag” that indicates something’s wrong with the company’s standing with the state. With lenders sometimes requiring good-standing status to approve new financing, a loss of good standing may be viewed as an increased risk.
Other businesses might require good standing for certain transactions, requests for proposals (RFPs) or contracts. A company looking to expand into other states will also need to register to transact business in those states. Usually, a new state will ask for a Certificate of Good Standing from your formation state (or your “domestic” state) before it will let you register.
There are other potential, and sometimes hidden, risks to forgetting to file documents such as annual reports. For example, as annual reporting and corporate good standing is a matter of public record, filing late can expose business owners to identity theft and cybercrime.
Cyber criminals have been known to regard businesses that are not compliant as easy targets because the owner’s attention is focused elsewhere. Hackers can steal personal information to open up lines of credit in the business’s name, or take customer data, thereby exposing the business owner to lawsuits from angry customers.
These problems can all be avoided by filing your annual report on time. If you need help, a registered agent service can be beneficial. Registered agents receive service of legal papers on behalf of businesses, as well as important state and federal mail, including tax forms and legal notices. In short, registered agents help ensure official state documents are handled correctly, thereby keeping the company in full legal compliance.
In filing your annual report, the key elements to include are the business entity’s legal name; the principal office address; the names and business addresses of the officers, directors and managers; and the registered agent’s name and address. More information can be found on the Florida Department of State website.
Most states have an annual report filing requirement, although specifics and deadlines for filing vary from state to state. Florida businesses with operations in other states should track the filing deadlines for all active corporations and LLCs in each jurisdiction where they have operations.
What to do if you forget to file
It is important to file on time to avoid the penalty and the risk of administrative dissolution. But fear not—administratively dissolved entities may be reinstated by submitting the appropriate reinstatement application and fees due at the time the entity applies for reinstatement. Be aware, however, that this reinstatement period is not unlimited; after one year you lose the rights to exclusive use of your company name.
At best, forgetting to file your annual report can create an administrative headache; at worst, it can expose you to significant liability. Filing your annual report on time will keep you in good standing with the state of Florida, setting your business up for a prosperous year with less worry and more opportunities.
As the CMO of the small business segment of CT, Jen Friedman is responsible for growing revenue through brand, digital and direct marketing. CT provides formation, incorporation, registered agent and other services to businesses of all sizes, and is the first public registered agent to formally offer benefit corporation entity services.