Editor’s note: Linda Markus Daniels is a founder of and principal in the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A. TechLaw is a regular feature in WRAL Local Tech Wire.
_______________________________________________________________________________________If your business form is a limited liability company (LLC), you have almost certainly received a notice within the last week dated January 10, 2005 (not 2006) stating that the LLC is being administratively dissolved because you failed to timely file an annual report. Don’t feel alone, approximately 24,000 of these notices were sent out.

Further, this letter was akin to the release of a new version of a Microsoft product: premature and full of bugs.

If you look up the annual reports filed for your LLC you are likely to find no missing filings and/or the filings made for one year have been arbitrarily applied to other years to create awkward holes. The Corporations Division of the Secretary of State’s office has been flooded with inquiries and has provided the following information (although not all in one place):

1. The mail house paid to prepare the letters placed the incorrect year in the date; a postcard is being sent to every LLC that received the letter correcting the date.

2. From 1993 through 1997 annual reports were due each year within 60 days following the last day of the month of creation. So, if the Articles of Organization were filed November 2, 1993, the annual reports would be due January 30 of each year.

3. From 1998 to 2001 annual reports were due each year on the 15th day of the fourth month following the close of the company’s fiscal year. In virtually all cases this meant on April 15.

4. Beginning in 2002, the filings all became due on April 15, and they were to be filed for the current year. This means that on April 15, 2002 LLCs were supposed to file two reports, one for 2001 and one for 2002. This is where the problem most likely occurred. If your LLC continued filing as normal, then your reports are now one year behind; the report due on April 15, 2006 is for 2006 rather than 2005 (as it would be if the report is for a corporation).

5. Any LLC in existence on or before April 15th of any given year starting in 2002 owes an annual report for that year. An LLC that forms on April 16th (or after) is not in existence when the due date for an annual report occurs for that calendar year; therefore, LLCs that form after April 15th will not owe an annual report until the next calendar year.

6. The database system automatically credits an annual report filed at any time to the earliest year that the entity is missing a report such that if the 2002 filing were missed the Corporations Division would place the 2003 report, when filed, in the 2002 annual report slot. But the Corporations Division also reports that because online filing is new there may be inaccuracies in how records in its database are displayed on the website. So, you need to check all the filings previously made by your LLC and if an annual report exists for that year that the website says is missing you should ignore the website’s instructions and simply file the report(s) that is actually due.

7. All of the above is entirely different than for corporations. Corporations file their annual reports with the Secretary of Revenue, and those reports are due on the due date for filing the corporation’s income and franchise tax returns. An extension of time to file a return is an extension of time to file an annual report.

While the above explanations are useful as to the date correction and the historical information, it otherwise often fails to match reality, and further, can create a legal nightmare. The fact is that the annual reports have not consistently been “credited” to the earliest year when a report was theoretically due. Otherwise the only reports due would be for the most recent years–and a spot check shows that this is not always the case. Further if a report submitted in 2006 were to be attributed, for example, to 2002, the officers and directors would likely be incorrect, providing a confusing legal record for those seeking information as to the 2002 time period.

To complicate all this, the Corporations Division web site has “pre-populated” forms that can be completed and mailed in. These forms contain certain information. but there is no date on them and no place to input one. Further, an earlier form had a box to check that nothing has changed from last year – but if the report is to be arbitrarily recorded as being made for a year not known to the LLC when the report is being prepared, then how does the person completing the form know what was “last year”? For example, if you assume the prior year is 2003 for forms that were completed for 2004, the checked box may be correct as to 2003, but then if the report is recorded by the Corporations Division for a missing 2001 report the checked box may be incorrect.

In addition, the Division is having a problem in that some LLCs that owe multiple reports are filing one report electronically, then printing the report, copying it and submitting it. Unfortunately since each report has a unique barcode at the bottom that identifies the company in the Division’s database, the system will not recognize a second report filed on the same form, even if you have marked it for another year. The result is that the barcode is read only once, and the LLC is credited with only one report, regardless of the total amount of reports submitted or fees that have been submitted and retained by the Division. So, you may have well filed all the reports and paid all amounts due, but the reports are recorded incorrectly if you used the form more than once.

It will be months (or more) before the Corporations Division is able to sort this all out. You can call them at 919-807-2225, but you may not be able to get through.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Linda Markus Daniels concentrates her practice in the representation of entrepreneurial and technology-based businesses, focusing on corporate, technology and international matters. Comments or questions can be sent to ldaniels@d2vlaw.com.