How Long Can a Corporation Exist?
Corporations can be established by the articles of incorporation, the founding documents that establish your business with the state as a separate legal entity.3 min read
How long can a corporation exist? This can be established by the articles of incorporation, the founding documents that establish your business with the state as a separate legal entity. If no fixed term for the corporation is established, it will exist in perpetuity provided it remains in good standing.
Characteristics of a Corporation
Corporations issue stock to investors, who then have an ownership stake in the company. Corporations are governed by the laws in the states where they are established. The formation documents are basically the same although they may be called either a charter or certificate of incorporation instead of articles of incorporation. Because a corporation is a legal entity separate from its owners, it continues to exist even when owners die or leave the business.
If the formation documents don't limit the corporation's term of existence, it will remain in existence until articles of dissolution are filed with the state. In some states, you might need to note the corporation's perpetual existence in the articles of incorporation.
Restrictive language can be added to the articles of incorporation that establish the business only for a certain purpose with a limited time frame. You can set a date on which the corporation will begin to wrap up its affairs. On that date, the business will cease to exist and must be dissolved unless the charter is later changed by director/shareholder vote.
Many states require annual reports and filing fees from corporations. Failure to follow these requirements can result in revocation of the corporate registration. This is the case in Maryland, for example. Although you can allow your corporation to become inactive by ceasing business activities or missing required filings, you may still be responsible for annual fees if you do not follow proper dissolution procedures. In addition, your business must continue to file federal and state income taxes until you officially dissolve. Depending on the state, you may be required to pay minimum taxes even if you aren't doing business, as well as fees for inactivity in some cases.
The corporate structure limits each owner's personal liability to his or her investment of the company. The corporation is considered a separate legal entity from its owner or owners.
Forming a Corporation
- In addition to filing articles of incorporation with the secretary of state, you may need to issue stock certificates and/or appoint a board of directors depending on state laws.
- Obtain state and local business licenses and permits.
- Register with the IRS for a tax identification number (EIN).
Dissolving a Corporation
In most states, you can dissolve your corporation by filing articles of dissolution. Some states require you to place an ad announcing the dissolution in a specific publication. You must also resolve all corporate fees, taxes, and debts. Then, leftover assets can be distributed among the shareholders. You should consult an attorney when dissolving your business since the process can be complicated.
Related Common and Case Law
The Corporation Code, which was established in 1980, allows corporations to exist for 50 years from the incorporation date. This can be extended by 50 years at a time by amending the articles of incorporation. This can be done within five years of the original expiration date.
Not only can you not extend the company's expiration date before that five-year window, but you also cannot do so once the expiration date has passed. A 2016 SEC opinion prevented a corporation founded in 1962 from renewing its lifespan, although the business argued that the term should be counted not from the incorporation date but from the passage of the Corporation Code. The SEC countered that the 50-year term requirements existed before the code took effect in May 1980. However, educational companies (as opposed to stock corporations) use May 1, 1980, as the date to begin the 50-year term if they were established before that date.
In the case of Western Branch v. Trust Company, the court found that the bank was established by charter and existed before it had stockholders, so it does not cease to exist when stock shares transferred to new ownership. The corporation remains intact during this interval.
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