Publicly traded companies and mutual funds must report annually to their shareholders on the state of the business. This document, known as an annual report, provides more than a basic overview of an organization’s financials. Rather, it serves as a comprehensive narrative that tells the story of a company’s successes, challenges, and strategic aspirations, similar to an operating agreement.
Read on to learn more about annual reports, and discover how board management software makes it easy for stakeholders to collaborate and access key materials in a secure hub.
What is an Annual Report?
An annual report is a document that outlines a business’s performance over the previous year. Annual reports are typically presented to shareholders at the annual shareholders meeting. Any publicly traded business must file an annual report, including limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs), along with mutual funds and similar investment organizations.
Serving as a key communication tool between the company and its shareholders, stakeholders, legal entities, and the public, an annual report offers a transparent and in-depth account of the business’s activities.
Why Annual Reports are Important
Annual reports serve as a comprehensive tool for stakeholders to gain a holistic understanding of a company’s financial performance, strategic direction, and governance practices, contributing to informed decision-making and building trust within the business ecosystem.
What’s at Stake if a Company Fails to Prepare and File an Annual Report
States may impose penalties on companies that fail to submit their annual report requirements to shareholders. This can result in late fees, denial or removal of a Certificate of Good Standing, and even administrative dissolution or revocation for non-compliance.
Further, late filing can result in fees, denial of lending, and loss of contract bids. You may also lose the ability to do business in a particular state.
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Components of an Annual Report
An annual report consists of 6 essential elements, which are outlined below. These pieces will be combined with the auditor-prepared financial documents as required by state and federal law.
1. Corporate Information
General corporate information includes the company’s name and address, purpose of business, directors and officers, and other information that helps identify and frame the organization’s identity. This information can also be found in a company’s articles of incorporation.
2. Operating and Financial Performance
The operating and financial performance section summarizes growth, revenue, and operational costs. It provides insight into a company’s success, growth, and profitability over the last year, and may also include multi-year financial trends.
3. Management’s Discussion and Analysis
This is an executive summary of the state of the business. It represents the thoughts and opinions of top management, and typically is used to inspire confidence and convey the company’s future plans based on current success trends.
4. Risk Factors
The annual report should include reasonable risk factors, such as industry disruption, supply chain shortages, and other concerns that shareholders should know regarding the business and potential for future performance.
5. Environmental, Social, and Governance Information
ESG, or Environmental, Social, and Governance information, assesses the organization’s practices regarding sustainability and ethical issues. This section should outline the company’s policies and initiatives that comply with ESG requirements and further ESG goals.
6. Legal Notices and Disclaimers
For legal purposes, certain notices and disclaimers must be included in the annual report. These may stipulate that information presented is based on current conditions and known data. It clarifies that information is not guaranteed to be absolute beyond the company’s financial records and predictions are not promises of assured outcomes.
Annual Report Examples
You can find many excellent examples of annual reports available online. The reports often vary widely in style and composition, based on the company and industry.
Master Document Management With OnBoard
OnBoard provides an intuitive meeting management software platform to help you run board meetings smoothly and effectively. By automating manual tasks, you’ll gain extra time to craft your annual report and access legal documents quickly, so you can get on with the real work of running your business.
Some of the core OnBoard features include:
- Agenda management: OnBoard simplifies agenda creation and distribution, ensuring all necessary topics are covered in meetings.
- Document management: The platform allows for secure storage and easy retrieval of crucial documents, such as financial reports, strategic plans, and meeting minutes.
- Voting and resolution tracking: OnBoard facilitates electronic voting and tracking of resolutions, making decision-making processes smoother and more transparent.
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About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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