1. Administrative Dissolution
2. Inactive vs. Delinquent
3. Current and Historical Delinquency Rates
4. Forming a Business: Rights and Responsibilities

If a corporation is delinquent, it describes someone or something that fails to achieve what the law or duty requires, such as failing to perform a specific action or make a required payment. Delinquency occurs when a corporation or individual fails to make payments on time for a contractual obligation such as:

  • Mortgages
  • Auto loans
  • Credit card accounts
  • Income taxes

There are penalties for delinquency that can include fees. With a mortgage, for example, the lender may begin foreclosure if the account remains past due beyond a certain length of time.

Administrative Dissolution

Regulated under state law, corporations offer their owners – referred to as shareholders – limited liability and make the transfer of ownership interests an easy process. The lifespan of a corporation can be perpetual as long as there is no failure to comply with the requirements for state filing.

If a corporation misses the filing deadline or does not replace a resigned agent in a timely manner, the state generally issues a noncompliance notice. If the corporation fails to comply with this notice by the date specified, it can result in being labeled as “delinquent” – or a similar term depending on the particular state's law.

Being declared delinquent gives the state the ability to administratively dissolve the corporation. This action results in the corporation no longer being allowed to do business within that state until a reinstatement application is filed, along with all paperwork, filing fees, and any other outstanding fees being brought current.

Inactive vs. Delinquent

Inactive status designates that the corporation has discontinued conducting business transactions. This designation is made public, and in certain states, will reduce the corporation's licensing fees. However, if the company purchases equipment, opens bank accounts, or incurs expenses, it is then considered to still be active regardless of whether any income is generated. Although varied by state, a company can request inactive status by filing a statement that claims no business transactions were made by the corporation during the prior year.

A corporation that receives inactive status is still required to follow all state filing and reporting rules. Failure to adhere to these requirements will result in the corporation being labeled delinquent and subject to administrative dissolution. In this case, if business activities have stopped, the shareholders may decide that the best solution is to dissolve the company voluntarily. With this method, the benefits are that the corporation is no longer in existence and is not required to file reports. The downside is that you will need to complete the incorporation process over again in order to resume doing business.

Current and Historical Delinquency Rates

According to Federal Reserve data, delinquency rates in the United States have been declining steadily since reaching a high of 7.4 percent during the Great Recession in the first quarter of 2010. Delinquency rates across the US banking sector as of the third fiscal quarter of 2017 were 0.8 percent on commercial real estate loans, 3.6 percent on residential real estate loans, and 2.3 percent on consumer credit card loans. The delinquency rate on total U.S. leases and loans sold by banks during the same timeframe was 1.8 percent, the lowest figure since the mortgage crisis of 2007 and subsequent financial recession. Prior to the second quarter of 2008, delinquency rates on total U.S. leases and loans sold by banks had not risen above 3 percent since the first quarter of 1994.

Forming a Business: Rights and Responsibilities

When business owners decide to form a corporation, they are required to file the appropriate paperwork with their state as well as with any other states in which they register to conduct business. The states will then grant rights to conduct business as a statutory entity, availing them of all the advantages this provides. In order to maintain this status, the business must adhere to certain laws and requirements which include:

  • Designating a registered agent.
  • Paying franchise taxes and/or fees.
  • Filing required forms in a timely manner.

As long as businesses are in compliance with this, they remain in “good standing” and maintain their Certificate of Good Standing. Entities that fail to comply with their obligations will lose their certification and can be deemed “delinquent,” “suspended,” “void,” or “dissolved.”

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