What Is a Dissolved Entity?
2. Dissolved Entities
3. When a Dissolved Entity Has Debt
4. Suspended Entities
5. Administrative Dissolution
A dissolved entity is a corporation that's not doing business anymore, and there are a number of steps that must be followed for the business to wind up its existence as a legal entity. A corporation exists separately from its shareholders, who are also its owners. Being separate from the shareholders allows them to have a limited degree of liability for company debts, and it also makes it easier for shareholders to transfer their interest in the organization. When a corporation dissolves, the reason for the dissolution can be important.
Reasons an Entity Dissolves
There are several reasons entities dissolve, which can include:
- Administrative dissolution by the Secretary of State for unpaid fees. This can happen even if the company has enough money to pay fees, but someone forgets to pay them.
- Lack of money to cover fees followed by dissolution from the Secretary of State.
- The business entity may request the dissolution voluntarily by applying for a certificate of dissolution. This has to be granted by the Secretary of State.
A corporation that doesn't want to be in business anymore and that follows the state and business corporation laws that cover properly shutting down an entity becomes a voluntarily dissolved entity.
Corporations and LLCs are entities that are started by authority granted by the state, so the only way to dissolve an entity, which terminates it existence, is by the state's authority. Every state has a procedure for the dissolution of a legal entity, but, formal action is required for dissolution. A letter or phone call to the state agency isn't sufficient. Actually, locking up and halting business operations is only part of the dissolution process for a business entity. The procedures to follow may vary based on whether the business entity is being voluntarily dissolved or administratively dissolved by the state.
When a Dissolved Entity Has Debt
All assessments, taxes, penalties, fines, and interest owed by an entity is still the entity's liability until the Secretary of State issues the certificate of dissolution. If the entity is dissolving just to keep a judgment creditor from getting money, that creditor can sometimes still get paid.
- The speed with which a creditor responds can be a determining factor
- Bank accounts held by the entity that aren't closed before suspension or dissolution may still exist.
- Those bank accounts are subject to garnishment, which the company can't stop because a dissolved entity can't appear in court.
- Sometimes, the people behind the entity can be added to a judgment suit, which is sometimes successful for creditors.
- If a suspended corporate entity is still operating, it can be because the owners are operating it as a DBA, or ‘Doing Business As'.
When suspended, a corporation is still classified as a business entity, even though it can't legally perform any business transactions. As a suspended business, the corporate powers are suspended until the organization has filed to have the entity revived. Suspended is different from defunct in the world of corporations. When suspended, a corporation isn't officially dissolved, and it can be:
- In a suspended state or condition
- Working to resolve the issues that led to its suspension
- In the process of forfeiting its charter
- In proceedings to voluntarily or involuntarily dissolve
- Going through the procedure of picking a trustee to appoint
- Working to distribute the company's assets
Administrative dissolution occurs when the Secretary of State's office ends a business entity's rights, authority, and power. It's one of the most negative things that could occur in regard to a business entity, and businesses should go to great lengths to avoid administrative dissolution. After a business has been administratively dissolved, state regulations decide how long it's able to remain in business. Laws that are unique to each state determine the process to formally dissolve a business. Those laws also cover liabilities the entity may face, plus the entity's responsibilities regarding shareholders and creditors once it has been dissolved.
If a dissolved entity has its rights, authority, and powers restored, that process is called reinstatement. The status of a business entity can be checked by visiting the Secretary of State's website in the state where it is registered.
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