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Annual Report Nightmares: Forfeitures and Deficiencies

Author: A. Howard Metro Date: 03/08/2011

Categories: Corporate and Business Law, Tax Services

To maintain good standing, entities formed in Maryland, Virginia and the District of Columbia, such as corporations, limited liability partnerships, limited liability companies (and the list goes on…) must file annual (Maryland or Virginia) or biennial (District of Columbia) reports (annual reports for cooperatives/associations), pay fees and in some states taxes, based on the report filed. The failure to do so can highjack a transaction, prevent renewals of licenses, or preclude a defense in a civil case. Each year of non-filing makes the process of returning to good standing more complicated and increases the costs. The authors implore you to be vigilant in filing these mandatory reports. Should you have any questions, please contact one of us.

Here are the requirements of our local jurisdictions:

Maryland

Failing to file personal property taxes after the termination of the business may be very costly. Montgomery County, in particular, is keen on bringing actions for unpaid personal property taxes when the entity’s last tax return prior to the termination of its business showed personal property owned. Montgomery County has devised a strategy to sue the principals of the entity in pursuit of the unpaid taxes.

Correctly terminating the company charter is not difficult. It requires a filing certifying that all taxes have been paid and Articles of Dissolution/Cancellation. Alternatively, filing a final personal property tax form with a disposition of personal property will avoid an action by a county to collect unpaid personal property taxes. Doing this correctly may alleviate responding to lawsuits against principals of the business long after the business ceases to exist.

The Maryland annual Personal Property Tax Return is due April 15th, with an extension available to June 15th. The filing fee per entity is $300.00 per year with the stipulation that there are no filing fees due for Domestic and Foreign Non-Stock Corporations and Foreign Interstate Corporations. If an extension is desired, an application must be timely filed with the State Department of Assessment and Taxation along with a fee of $20.00. Late filings will result in late fees being assessed. Failure to file a timely Return results in a change in status and the entity may not be considered in good standing until such filings are made and taxes are paid.

Virginia

Corporations: Annual Reports and Registration Fees must be paid to the Virginia State Corporation Commission on the first day of the second month preceding the month in which the corporation was incorporated. If the Annual Report and Registration Fees are not received by the last day of the calendar month in which the entity was incorporated (or the date the entity was authorized to transact business in Virginia), penalties will be assessed. The fee for a stock corporation is based on number of shares of stock the corporation is authorized to issue as of the date of assessment. Annual fees for non-stock corporations are $25.00. If the annual report and/or Registration Fees are not paid within 4 months of the due date then Virginia may terminate the entity’s existence. The fee schedule for stock corporations can be found at http://www.scc.virginia.gov/clk/formfee.aspx.

Limited Liability Companies: Limited Liability Companies are required to pay an Annual Registration fee of $50.00 to the Virginia State Corporation Commission. This payment must be received by the Commission no later than October 1st of each year. If the payment is not timely received a $25.00 penalty will be assessed; moreover, Limited Liability Companies will have their existence canceled if Registration fees are not paid by December 31st.

Limited Partnerships, Limited Liability Partnerships and Business Trusts are also required to pay an annual fee of $50.00. Due dates and any applicable reporting requirements vary but the Virginia State Corporation Commission sends notice to the registered agents of all entities owing fees and/or reports in advance of the due date.

District of Columbia

The District of Columbia requires the filing of a biennial (two-year) report for all entities but cooperative associations, which must file annual reports. Registration and renewal are often overlooked subjecting companies to penalties and interest. As these are not tax returns, accountants rarely file the reports due for D.C. so it is up to the individual stockholder(s) and director(s) to file the report.

Corporations: Foreign and Domestic Corporations must file a biennial report and remit a filing fee of $275.00. Any Corporation that registers/qualifies to do business in the District of Columbia before April 15th of that calendar year must file its first biennial report by April 15th of that year and then every two years thereafter. If a Corporation registers/qualifies after April 15th, it must file its first biennial report by April 15th of the following year and every two years thereafter.

Non-Profit Corporations: Foreign and Domestic Non-Profit Corporations must file a biennial report and remit a filing fee of $82.50. The first report is due January 15th of the year following its initial registration/qualification and every two years thereafter.

Limited Liability Companies: Foreign and Domestic Limited Liability Companies must file a biennial report and remit a filing fee of $165.00. The first report is due June 16th the calendar year following its initial registration/qualification and every two years thereafter.

Limited Liability Partnerships: Foreign and Domestic Limited Liability Partnerships must file a biennial report and remit a filing fee of $220.00. The first report is due April 1st the calendar year following its initial registration/qualification and every two years thereafter.

Cooperative Associations: Foreign and Domestic Cooperative Associations must file an Annual Report which is due by April 15th of every year. The filing fee is $0.55.

*Payments are usually due on the dates listed above; however, if the due date falls on a weekend or holiday, the DCRA typically makes the report due the next business day. Late filings will result in late fees being assessed to the entity.