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What Is Administrative Dissolution
With regards to corporations, administrative dissolution refers to the instance when the government takes away a business entity’s rights, powers, and authority resulting from the business entity’s failure to comply with the applicable business entity statute.
In other words, a corporation, limited liability company, or any other business entity formed under the law and recognized by the state is dissolved.
A corporate dissolution or any business entity dissolution means that the company no longer has the right to conduct business, shareholders no longer have the limited liability protection afforded by the business entity, cannot enter into any transactions, get financing, or get into transactions that proof of the business entity existence will be required, among other things.
In essence, an admin dissolution is probably the worst thing that can happen to a company as it ends its “existence”.
Why Business Entities Are Administratively Dissolved
What are the reasons for the state to administratively dissolve a business entity?
When business entities like corporations, LLCs, or other entities are formed under the law, they are then required to continually comply with the state laws to maintain their business entity in good standing.
When the company fails to respect the requirements of the law to maintain its status, the state can take administrative actions against the company to have them comply.
In certain cases, the administrative action is to dissolve the business entity.
Here are some of reasons for an administration dissolution of a business entity:
- Failure to pay franchise tax (if any are payable)
- Administrative dissolution for failing to file an annual report within the required timelines
- Failure to maintain a registered agent
- Failure to maintain a registered office
- Failure to pay applicable ongoing fees (if any)
- The business entity’s period of duration as stated in its constituting documents expires
Administrative Dissolution Procedure
For a business entity to be dissolved or removed from the business entity registry, the Secretary of State or state agency managing business entities is required to follow the specific procedures applicable by law.
Although an admin dissolution can follow slightly different procedures depending on the applicable law, generally the state must provide a notice to the business entity before proceeding with a dissolution.
When the business entity receives a notice of administrative dissolution, it will be given a certain amount of time to cure the default and ensure compliance with the law.
If the default is cured, then the administrative dissolution procedure will be halted.
However, if the default is not cured, the business entity will be dissolved administratively.
Consequences of Administrative Dissolutions
What are the consequences of an administrative dissolution of a business entity?
Although the legal consequences of an administrative dissolution may vary, the consequences of dissolution for a company can be significant.
Technically speaking, when a business entity is dissolved, it means that it no longer exists.
However, in certain circumstances, a dissolved business entity may have the ability to “exist” until it winds up its business operations.
The laws that enable such temporary existence of the business entity is called the “survival statute” giving the business entity a certain amount of time for a company to totally wind up.
Following the dissolution of the company, the only business activities the company may be authorized to perform are to liquidate its assets and wind down the business.
However, when a dissolved business entity engages in business activities other than liquidation procedures, it can face various legal consequences such as:
- Officers, directors, and those acting on its behalf may engage their personal liability
- It will not have the right to file a lawsuit or defend against one
- Business contracts will be considered void or voidable
- The shareholders will not have the limited liability protection
- Loss of business name
If your business entity has received a notice of dissolution, it’s important that you act quickly and either cure the default or formally terminate the business entity if you no longer need it.
How To Reinstate the A Dissolved Business Entity
When a company is dissolved by the state, in most cases you still have the chance to reinstate the company and bring it back to good standing.
The first step is to understand why the business entity has been dissolved.
For example, if the dissolution was a result of the failure of annual reports, then you’ll know exactly what to do to cure the company’s default.
Once you know exactly the reason why the company was administratively dissolved, you should then do what’s necessary to cure the default.
Then, you’ll need to pay all the applicable fees to the Secretary of State or state agency including any interest and penalties that may be due.
Finally, you’ll need to file an application for reinstatement of the business entity so the Secretary of State can review the request and reinstate the business entity if the default is cured.
Once the state agency validates that the company is now in full compliance with the law, it will reinstate the company.
Keep in mind that in some states, a company will only have a certain period of time to file an application for the reinstatement of the business entity.
If that’s what you intend on doing, you’ll need to act quickly.
Administratively Dissolved Takeaways
So there you have it folks!
What does administratively dissolved mean?
What happens to dissolved corporations or business entities?
Can a dissolved company still operate?
An administrative dissolution in business refers to the dissolution of a corporation, limited liability company, or any other type of business entity by the Secretary of State or state agency.
A company is dissolved when it fails to comply with the applicable state laws to remain in good standing.
For example, an administrative dissolution for annual report is when the company fails to file its annual reports on time and eventually the state dissolves the business entity.
The consequences of a business dissolution can be detrimental as your business entity will lose its rights and powers granted under the law and be prohibited from transacting business.
In other words, your company will no longer have the right to operate if it is dissolved.
If you have received a notice of administrative dissolution or your entity has already been dissolved, be sure to consult with a business attorney to get legal advice on how to remedy the situation.
Now that you know what administrative dissolutions represent, why they are important, the possible consequences, and how to deal with them, good luck in your research!
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Understanding Administrative Dissolution
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