Is Annual Review Necessary for U.S. Companies? Everything You Need to Know in One Article

Is Annual Review of U.S. Companies Really Necessary? After Reading This, You’ll Understand

When starting a company in the United States, especially a small or medium-sized business, annual review-also known as the Annual Report-is a mandatory legal requirement that cannot be overlooked, in addition to initial registration, operations, and tax reporting. Many people ask Is the annual review really that important? What happens if it is not submitted on time? Today, we’ll dive into the details of U.S. company annual reviews and, with the help of recent news, help you understand why it’s important and how it impacts your business.

1. What is a Company Annual Review?

The company annual review, also known as the Annual Report, is a report required by U.S. states for registered companies to submit annually in order to update operational information. This typically includes the company name, registered address, director or manager information, and shareholder details.

The purpose of the annual review is to ensure transparency and compliance, making it easier for state authorities to regulate businesses. Requirements may vary slightly by state. For example, California refers to its annual report as a Statement of Information, while Delaware requires the Annual Franchise Tax Report. Although the formats differ, the core goal remains the same to maintain the legal operating status of the company.

2. Is the Annual Review Mandatory?

The answer is yes-it is a legal obligation with real consequences. Failing to submit the annual report on time can result in fines, late fees, or even the revocation of the company’s business license.

Take California as an example. In 2025, the state clearly reinforced penalties for companies that fail to submit their annual reports on time. According to data from the California Secretary of State, over 32,000 companies had their operating rights suspended for not submitting the report, with more than 11,000 of them submitting late and incurring additional costs and legal risks.

In early 2025, the U.S. Federal Trade Commission FTC released a report on small business compliance, revealing that over 40% of small businesses were forced to close within their first two years due to neglecting compliance procedures like the annual review. The report emphasized that the annual review is not just a formality-it is a prerequisite for maintaining business credit, securing financing, and participating in procurement.

3. What Are the Practical Benefits of the Annual Review?

1. Maintaining Legal Business Status

The annual review is essential for keeping a company legally active. Missing the deadline can result in suspension or even removal from the state registry. Once removed, reinstating the company involves higher costs and a more complex process.

2. Protecting Business Credit

In the U.S., a company’s credit history is directly tied to its annual review status. Failing to file regularly can damage its reputation with banks, suppliers, and partners, and may even affect loan approvals.

3. Avoiding Fines and Legal Risks

Penalties for late filing vary by state. For instance, New York imposes a $200 fine per quarter for late submissions, while Florida charges up to $500 in late fees for companies that file more than 60 days overdue.

4. Facilitating Tax Reporting and Audits

The information submitted during the annual review often overlaps with tax reporting requirements. Keeping the annual review up to date makes federal and state tax filings smoother and reduces the risk of inconsistencies.

4. Is the Annual Review Process Complicated?

For most small and medium-sized businesses, the process is straightforward and can often be completed online. In California, for example, the annual report can be filed directly through the Secretary of State’s website in about 15 minutes, at a cost of $20. While Delaware’s process involves paying a franchise tax, it is still relatively simple.

However, it’s important to note that the annual review and tax filing are two distinct processes. The annual review focuses on updating basic company information, while tax filing involves reporting financial status to federal and state authorities. Both are important and must be completed separately.

5. Are There Companies Exempt from Annual Review?

Not all companies are required to file an annual report. For example, nonprofit organizations Nonprofits or certain types of Limited Liability Companies LLCs may be exempt in some states. However, even if a company qualifies for an exemption, it must actively apply for it-there is no automatic exemption.

Some startups mistakenly believe that if they haven’t started operations yet, they don’t need to file. In reality, as long as the company is legally registered, whether or not it is currently operating, it must fulfill its annual review obligations. In 2025, a tech startup in Texas was automatically dissolved by the state for failing to submit its annual report, which severely hindered the founders’ ability to secure funding.

6. How to Avoid Missing the Annual Review Deadline

To avoid missing the annual review

Set Reminders States usually provide the due date when a company is registered. Setting a calendar alert is a simple but effective way to stay on track.

Use Professional Services Many companies hire a Registered Agent to handle annual review tasks, ensuring nothing is overlooked.

Check Company Status Regularly You can check your company’s status e.g., Active or Suspended through the state’s official website to catch issues early.

Conclusion

While the annual review may seem like a routine task, it plays a foundational role in maintaining legal compliance for your business. Ignoring it can lead to financial losses and hinder future growth, financing, and partnerships. Whether you’re a startup or an established business, the annual review is a responsibility that must not be overlooked.