1. Dissolution
2. Suspended Corporation
3. Administrative Dissolution
4. Carrying on Business in the Name of a Dissolved Corporation

A dissolved corporation still operating typically has no corporate powers, meaning that the company has no legal rights as a corporate entity.

Dissolution

On occasion, a financially troubled business deals with tough decisions, such as which creditors to defer and which to pay. Creditors include federal and state taxing authorities, and if you opt to defer a payment of state taxes, you might encounter significant legal and economic consequences.

Unfortunately, a business might accidentally overlook a state tax payment or filing obligation. As a result, the business suffers dissolution of the corporation by proclamation. Under state law, the legal entity of the corporation ceases to exist and it does not have any legal rights as a corporate entity.

Suspended Corporation

There's a difference between a suspended and a defunct corporation. A suspended corporation could be one of the following:

  • It could be dealing with a state of suspension.
  • It could be clearing up issues that led to the suspension.
  • It could be working on proceedings to forfeit its charter.
  • It could be processing involuntary or voluntary dissolution.
  • It could be appointing a trustee.

When a corporation encounters a suspension, it is still an entity. However, it cannot legally transact any business and has its corporate powers suspended until it files for an entity revival. Once it fixes its deficiency, it can gain activation.

Sometimes a suspended corporation remains in business. If this occurs, the owners usually operate the business as a doing-business-as (DBA) entity. To check the status of a corporation, go online to your specific state's Secretary of State office.

A suspended corporation voluntarily shuts down, whereas a dissolved corporation means that officers shut down the company properly. While forfeited and suspended mean almost the same thing, the company failed in one regard or the other to file proper reports or pay taxes.

Administrative Dissolution

Laws or business corporation laws defined by the state determine entity dissolution. When administrative dissolution occurs, a business can still operate, have bank accounts, and accept payments. However, a creditor cannot go after any possible assets of that entity.

If the suspended or defunct entity receives payment from clients, the checks must go into a corporate bank account. A debtor examination, or ORAP, can occur on the officer.

Businesses can continue to operate for years without applying for reinstatement. An administrative dissolution doesn't mean the entity has no responsibility in paying its creditors or that legal action cannot occur.

If you have a judgment against a suspended corporation that continues to operate, you can try to locate its bank. In levying its bank account, the corporation cannot claim an exemption or try to block you until it reinstates its corporate standing.

The corporation cannot defend any action you take in court against it as long as the suspension remains active. The only defense the entity has is to tell the court that the debtor principals will reinstate the company and ask for a continuance.

A voluntarily dissolved entity can decide it no longer wants to remain in business for a variety of reasons. It proceeded to follow all state and business corporation laws to shut down the business properly. Afterward, former officers or legal representatives apply to the Secretary of State for a certificate of dissolution.

Carrying on Business in the Name of a Dissolved Corporation

Incorporating a business gives its officers and directors protection against personal liability. But failing to keep the corporate entity in good standing with the Secretary of State's office can lead to personal liability for the business owners who continue to conduct business under the defunct corporate entity's name.

When incorporating a business, there are benefits and disadvantages. Businesses must adhere to strict corporate formalities, even if there's corporate dissolution. The law dictates specific rights and obligations upheld by corporate officers upon dissolution.

If the corporate office conducts business on behalf of the dissolved corporation, the corporate officer holds personal liability on those transactions. This holds true even if the officer doesn't know about the corporate dissolution. Consequently, corporate officers must make sure the corporation maintains lawful existence and adhere to rights and obligations pertaining to corporate activities.

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