With the May 15th filing deadline only weeks away, hundreds of thousands of Michigan for-profit corporations, will submit their annual reports to Michigan’s Department of Licensing and Regulatory Affairs to remain legal entities and compliant with state regulations.
Not to be confused with the complex financial statements issued by large public companies, the annual reports simply update or confirm existing state records—including the principal business location, officers’ names, and the name and address of the business’s registered agent. Whether changes are needed or not the report must be filed each year for the business entity to maintain its “active status.” Out-of-state businesses that have registered to do business in Michigan are also required to file the report.
While filing may seem like a hassle for a busy business owner, annual reports serve the important purpose of keeping a company on record with the necessary government agencies. Busy business owners, wearing many hats, may forget to file these reports, and unfortunately there can be ramifications if this happens.
Late Filing Fees
First and foremost, businesses in Michigan that file late are penalized $10 a month with a maximum penalty of $50. While under certain circumstances the penalty can be reduced or waived, the best practice is to file on time. While fines can be a thorn in the side of any business (especially small, cash-strapped businesses), there are more serious potential ramifications.
Personal Liability Risk
If the failure to comply extends for a long enough period of time, the state may move to administratively dissolve the company. 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 the 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 main and most important reasons a business incorporates in the first place.
Jeopardizing ‘Good Standing’
Failing to file an annual report also forfeits the company’s “good standing” with the state, which can threaten expansion plans and financing opportunities. The inability to provide a Certificate of Good Standing raises a compliance “red flag” that indicates something’s wrong with the company’s state status. Because lenders sometimes require good-standing status to approve new financing, a loss of good standing may be viewed as an increased risk and jeopardize a loan.
In addition, other businesses sometimes require good standing for certain transactions, such as requests for proposals (RFPs), or contracts. Potential expansion plans may be jeopardized as well. If your company is looking to expand into other states, you will also have to register to transact business in those states. The new state(s) will often ask for a Certificate of Good Standing (or Certificate of Status) from the company’s formation or “domestic” state before they’ll let you register.
Cybercrime
There are other less obvious and sometimes hidden risks. 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 target businesses that are not compliant, assuming (often correctly) that the owner’s attention is focused elsewhere. Hackers can steal personal information to open up lines of credit in the business name, or take customer data, exposing the business owner to lawsuits from angry customers.
Maintaining Compliance
The best course of action, therefore, is to file your annual report on time. The key elements are the business entity’s legal name, the principal office address, the names and business addresses of the officers, directors, and the registered agent’s name and address. More information can be found on the Michigan Department of Licensing and Regulatory Affairs website.
If you have operations in other states, be sure to track the filing deadlines for all active corporations/LLCs in each jurisdiction because the specifics and deadlines for annual report filing vary from state to state.
If you need assistance 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 ensure official state documents are always handled correctly, thereby keeping the company in full legal compliance.
In Michigan, the state mails the annual report forms—pre-populated with last year’s information—to the business entity’s “resident agent,” which is Michigan’s term for registered agent. Having a registered agent, therefore, means your annual report requirements will be addressed well within the May 15th deadline.
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. In Michigan, a corporation that fails to submit its annual report or pay the related fee within two years of the due date is automatically dissolved 60 days after the expiration of the two-year period.
But fear not—administratively dissolved entities may be reinstated by submitting the reports and paying the fees (for the year(s) they were not paid) plus a penalty of up to $50.00. Be aware, however, this reinstatement period is not unlimited; after one year you lose the rights to exclusive use of your company name. For more information, go to the Michigan Department of Licensing and Regulatory Affairs website.
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 Michigan, setting your business up for a prosperous year with less worry and more opportunities.
