An annual report provides a snapshot of a company's current financial status. Although most small businesses don't need to worry about creating an annual report, publicly traded corporations are required to prepare one. (Corporations are required to file other, more detailed financial documents periodically as well.)

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How Are Annual Reports Different from Annual Statements of Information?

Annual reports are not to be confused with Annual Information Statements. Many business entities need to complete an Information Statement annually or biannually, depending on the state. The purpose of this form is to update the state with key information about the business, like its address, contact information, names of business owners, etc. If you need help with your Information Statement, contact us to learn how we can help.

What Should Be Included in an Annual Report?

Although not all companies are required by law to file an annual report, some businesspeople consider it a good practice to prepare and release one even if you are not required to. An annual report is a basic summary of your corporation or company's activities over the past year, focusing on financial information that is relevant to anyone with a stake in the company, anyone considering investing in the company, and to governmental agencies. A typical report will include detailed financial information such as balance sheets, cash flow statements, statements of profits and losses, and a detailed explanation of the company's accounting policies. Beyond that, it may also include statements from the managing staff, descriptions of major events, auditor reports, and so on. Certain elements of the annual report are required by law, but other details may be optional. It is very important that all the information included in an annual report is accurate. This means that the process of preparing the report should include:

  • Finding out what your company is required by state and federal law to include in its annual report,
  • Consulting your company's bylaws to make sure that your planned report will be in compliance with the company's own policies,
  • Compiling your financial information and any additional statements (such as a letter from the CEO) that the report will contain, and
  • Meticulously verifying all facts and information presented in the report, having an independent auditor confirm your financial data.

Remember that once your annual report has been published, it will be on record for the life of your business.

A Tool for Investors

Your company's annual report can be a powerful tool for attracting investors. Regular reports not only help bring others up to speed on current developments in your company, but also establish a continuous history that potential investors can easily refer to. Instead of describing in painstaking detail how your company fared over the years, you can simply present a prospective investor with archival reports. If you intend to use your annual report as a marketing tool to attract investors, you will want to select relevant topics and indicators, focusing on making the report informative, yet not overloaded with extraneous details.

If you need help with you annual report, ask a lawyer.

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