Reinstatement Application After Administrative Dissolution
An application for reinstatement following administrative dissolution is an action taken to restore a business entities' rights, powers, and authority.3 min read
2. Reinstating an Administratively Dissolved Business Entity
3. Conditions of Reinstatement
An application for reinstatement following administrative dissolution is an action taken to restore a business entities' rights, powers, and authority.
Administrative dissolution is a process that should be avoided as it negatively impacts the business as a whole. This action, taken by the Secretary of State, causes a business to lose rights, powers, and authority. This step occurs when there is a failure to comply with the obligations of the domestic corporation, LLC, or other statutory business entity. Often, those in charge of the company are not aware of the dissolution until they attempt to conduct business such as filing legal documents, file a lawsuit, attempt to court new investors, or similar actions where proof of the business entity is required.
The most common grounds for administrative dissolution are:
- Failure to pay taxes in the required time frame
- Failure to deliver an annual report by the required deadline
- Failure to keep a registered agent or registered office for a set period of time
Consequences of Administrative Dissolution
After a business entity has been administratively dissolved it cannot legally engage in any business actions except for the steps needed to liquidate assets or tasks related to closing the business. If the business fails to comply and proceeds with normal business actions, legal complications will arise, including:
- Personal liability for debts or obligations created while the entity was dissolved
- The inability to bring/file a lawsuit
- Making any actions made during the dissolution void or voidable
Reinstating an Administratively Dissolved Business Entity
To begin the process of reinstatement, the business must complete the following actions:
- Restore the inaccuracies that caused the dissolution
- Submit payment for any outstanding taxes, interest, and/or penalties that are due
- Complete and file the application for reinstatement with the state
In most states, there is a time frame for which reinstatement is available. Typically, it is no less than two years or more than five years after dissolution.
Conditions of Reinstatement
1. Date of dissolution and reinstatement
Once reinstatement takes place, the state marks the reinstatement date as the date of the dissolution. This creates the situation where it appears that the dissolution never actually occurred. Once this happens, many problems such as personal liability for debts, void or voidable actions, or the inability to press legal actions are eradicated.
An example of this situation is shown in Brown v. Waldron, 186 So. 3d 955 (Miss. App. 2016). In this case, homeowners brought a suit against the members of the LLC who built their home. The claim was that the LLC members should hold a personal responsibility for the home defects because the LLC had been administratively dissolved. The homeowners lost the case because the LLC has been reinstated thus removing the members' personal liability.
2. Personal debt responsibility and the inability to sue
In most reinstatements, personal liability is removed, and the ability to sue is restored. However, that is not always the case. In Benetton U.S.A. Corp. v. Kostopulos, 10 CV 106, 2011 U.S. Dist. LEXIS 121187 (N.D. Ill. Oct. 19, 2011), the corporation was administratively dissolved after they failed to file an annual report and their president and only shareholder kept operating the business in Illinois. During this time, the corporation ordered merchandise which resulted in the seller filing suit. Despite the corporation's reinstatement, the president was held liable for the debt by the court. Under Illinois law, the officer will be held personally responsible if there is evidence to show that there was knowledge about the dissolution.
3. Loss of name
A loss of name can occur if that during the period of administrative dissolution another business entity forms, changes its name, or qualifies for the same name. In this instance, the company must choose another name when they attempt to be reinstated.
If a business entity fails to complete their application for reinstatement following administrative dissolution within five years, reinstatement won't be possible. This will result in those involved being personally responsible for any company incurred debts during the time of dissolution.
5. Company Status
If the company continues to do business and doesn't complete the reinstatement process, it will then be considered a sole proprietorship or a partnership. It will then fall under the laws and requirements of those statuses.
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