Attorney Jodie Jordan explains what happens how a company falls out of good standing, why it matters, and how to fix it.
Companies fall out of good standing ALL of the time. So it doesn’t really matter, right? Well, yes and no. It’s a big deal because if the company is dissolved, the owners and managers may be held personally liable for company debt ….. The good news is that it is easy to fix.
Administrative dissolution often strikes a business under its radar. It happens when the state dissolves the company for failure to comply with certain corporate laws, such as failure to pay its franchise taxes or file its annual reports.
The scary part of administrative dissolution is that it usually happens without the company even knowing about it. The managers are busy running the day to day operations of the business and simply forget to file their annual report. They continue to pay state and federal taxes. They continue to comply with employment laws. They continue to meet their regulatory requirements. But they forget to file a seemingly meaningless piece of paper.
Once the company has been dissolved it cannot legally engage in any business activities other than liquidating its assets, winding up its affairs and paying its creditors. Of course, the problem when the company doesn’t even know that it has been dissolved is that it is continuing to run the business as usual.
And here is why this is a big deal – First, the owners and managers may be held personally liable for the debts and obligations incurred while the company is dissolved. Let that sink in. That’s a super big deal. Second, the actions of the company could potentially be considered voidable. Third, the company may be unable to file a lawsuit. Fourth, the company is vulnerable to criminals reinstating the company to commit fraud. Not good, right?
Thankfully, the problem is easy to fix. Reinstating the company restores all of the company’s rights and authority to do business. This involves curing the grounds for dissolution (i.e., filing annual reports, paying taxes and penalties) and filing an application for reinstatement with the state. Pretty simple.
Keep the Momentum: Avoiding the Legal Landmines of M&A In the world of Mergers and Acquisitions, momentum is everything. Once a deal loses its pace, it risks falling apart entirely. While a business may be financially sound, a single overlooked legal detail can be enough to erode trust, stretch timelines, and ultimately kill the transaction.
Read more
The Hidden Value Driver: Is Your Legal Structure Costing You at the Closing Table? When it comes to valuation, most founders focus on EBITDA and growth—but your legal structure is what determines how much of that value you actually get to keep.
Read more
