Can I Reinstate an Inactive Corporation?

By Wayne Thomas

A corporation is an independent entity that exists with a legal life of its own. Every corporation is subject to the laws of the state where it is incorporated. Although the life of a corporation is theoretically everlasting, certain voluntary and involuntary actions by corporate shareholders can cause the company to be declared inactive by the state. Each state has its own rules for restoring a corporation to active status, which can involve the payment of penalties and applying for reinstatement.

A corporation is an independent entity that exists with a legal life of its own. Every corporation is subject to the laws of the state where it is incorporated. Although the life of a corporation is theoretically everlasting, certain voluntary and involuntary actions by corporate shareholders can cause the company to be declared inactive by the state. Each state has its own rules for restoring a corporation to active status, which can involve the payment of penalties and applying for reinstatement.

Corporate Creation

A corporation operates according to state law, and is formed by filing Articles of Incorporation with the Secretary of State. Although each state has its own preferred form, the Articles almost always require you to supply the business name, purpose of the company, and how may shares of stock the corporation is authorized to issue.

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Inactive Corporations

The life of a corporation is theoretically everlasting. In other words, the company will remain in existence until it is dissolved, by either state administrative action or voluntarily by the shareholders. The process for shareholder dissolution can vary between states, but usually requires the filing of Articles of Dissolution with the secretary of state and winding up corporate affairs by settling creditor claims and distributing remaining assets. If the shareholders do not complete this step, the corporation does not dissolve and instead remains inactive. Inactive corporations are not operational and have no revenue or expenses, but are still deemed to be in existence. During periods of inactive status, the corporation must still file tax returns and annual reports, and continues to be potentially liable to creditors.

Administrative Action

Although a corporation may become inactive voluntarily by ceasing operations, it may also be placed on inactive status by the state. Most states will automatically remove a corporation's active status if the company has failed to file required annual reports or any other state-required documents. However, the time period in which such reports can remain delinquent before inactive status kicks in can vary from state to state. For example, in Louisiana, a corporation will only be placed on inactive status if you fail to file three years in a row. In Georgia, a corporation can be declared inactive if an annual report is delinquent for more than 60 days.

Reinstatement

Like revocation, the process for reinstatement of an administratively inactive corporation can vary from state to state. Georgia, for example, requires a formal request for reinstatement filed along with the current annual report and a filing fee. In Maine, penalties are assessed against the corporation, which must be paid. Further, the state requires the corporation to file an application indicating the grounds for dissolution have been corrected. The application will be reviewed by the Secretary of State for completeness before reinstatement will be approved. In contrast, Alaska does not require the filing of a formal reinstatement request, but imposes the payment of double the filing fees plus all fees that would have been due during the period while the corporation was dissolved. In Alaska, reinstatement is only available for two years after a corporation is declared inactive; after that time, the company must start over with the incorporation process.

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The Difference Between Delinquent & Inactive Corporations

References

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Where Is a Corporation Domiciled?

One of the biggest decisions when starting a business is to decide where the corporation will be incorporated. This decision determines the state laws that govern the corporation, which in turn shape the rights of the shareholders, board of directors and corporate officers as well as the rights and remedies relating to creditors. Finally, the choice of where to incorporate will determine the amount of state taxes paid by the corporation, and state tax rates vary greatly. The state of incorporation is the domicile of the corporation.

South Carolina State Statute for Dissolving a Corporation

When it is time to wind down the affairs of a corporation, state law governs the protocol for how to terminate the business. There is a formal process by which the corporation must be dissolved and this process is overseen by a state governmental body. In South Carolina, the Secretary of State administers the laws relating to corporations in the South Carolina Code of Laws. Chapter 14 of Title 33 of the South Carolina Code of Laws specifically governs the dissolution of corporations.

What Is an Inactive Corporation?

An inactive corporation legally exists but has no business activity. A corporation is created by filing the necessary forms with the state business department and the IRS. Once a corporation is officially registered with the state and federal government, it's a legal business and remains so until the corporation is formally dissolved. A corporation that is inactive but not dissolved still has tax and state reporting obligations.

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