News & Resources

The Value of Annual Filings – Or How I Stopped Worrying and Learned to Love the Secretary of State

(February 1, 2017 – William Bray) Hopefully there are some Peter Sellers or Stanley Kubrick fans out there who appreciate this reference. For everyone else, this is a tale of corporate panic – and how clients often learn the hard way that those silly annual filings really are important.

Most states, including North Carolina, Delaware and Nevada, require that corporations and limited liability companies file a relatively simple document annually to confirm the continued existence of their enterprise. Necessary information may include the names of officers, directors and the registered agent, and the document can usually be filed online.

This is not rocket science, folks!

When we host an organizational meeting for a new North Carolina entity at Bray & Long, we impress upon the client that these reports must be filed by April 1 every year. Then we send a reminder letter to current clients at the beginning of the year, in which we again remind the client of this corporate requirement and offer to handle the filing for them.

Approximately 25% of our clients have us deal with their filings. We collect the information, get the document together and either file a hard copy or submit it online. For a fee, the client is on solid legal footing for another year.

Of the remaining 75% of our clients who handle this work on their own, most are efficient and effective. But for a small minority, one year of neglect turns into two years of neglect and then – poof, their entity is dissolved by the state and they are operating without the veil of protection afforded by a well-structured corporate entity.

We have had clients contact us who have been operating for up to SIX years as a dissolved entity. Amazingly enough, we can generally fix their problem (assuming no one has begun lawfully using their corporate name in the meantime). For a fee, the Secretary of State will reactivate a dissolved entity and in most instances the corporate veil of protection will be deemed retroactive by the courts.

How and under what circumstances do clients discover that they are no longer in good standing? More often than not, someone else discovers it for them. Their bank, their real estate closing attorney or a prospective purchaser of their business who is conducting thorough due diligence. Trust us, you will not enjoy this call! Under any of these scenarios, the value of your company in the eyes of the caller has diminished.

Whether you find this annual task tedious, time-consuming, expensive or wasteful, just understand this – it represents a cost of doing business. Embrace it, calendar it, make sure your lawyer or your CFO are on top of it. And use it as an opportunity to conduct all of those “silly” corporate formalities you might otherwise neglect (like a documented annual meeting!).

We as business and corporate lawyers take these matters very seriously. Let us help – and in the long run, the value to you and your company will be returned when a buyer’s due diligence demonstrates your company to a bullet-proof machine.