September 30, 2014
The Corporate Walking Dead
On the blog for Executive Legal Professionals, there are many articles and at least one white paper about how to form a company. As attorneys, usually we prefer to help people start businesses over helping business owners close them. The beginning of a business venture is often a process full of hope and optimism. While the closing of a business can be a positive experience, too, the sad reality is that it often isn’t.
How does a business die, though? Really? By the death of a business, we don’t just mean its failure to become and remain profitable, although that certainly is the beginning of the end. No, we mean, how does a business legally cease to exist? That’s what this article is about, and what you’re going to read may shock and even frighten you. So, buckle up, Buttercup; this is one blog post you just can’t afford to ignore.
Administrative Dissolution does not effectively end a company’s existence. Read that again, and let it sink in. In Tennessee, under Title 48, Chapter 64, Part 2, Section 202(c) of the Tennessee Code Annotated, the law says, “A corporation administratively dissolved continues its corporate existence but may not carry on any activities except that necessary to wind up and liquidate its assets and affairs under § 48-64-106 and notify claimants under §§ 48-64-107 and 48-64-108.” (T.C.A. § 48-64-202(c)) In fact, under T.C.A. § 48-64-202(d), “The administrative dissolution of a corporation does not terminate the authority of its registered agent.”
And for those of you out there who think you’ve found a “loophole”—“Hey, my company is an LLC, not a ‘corporation.’ That must not apply to my company!”—think again! Both LLCs and corporations administratively dissolved continue their corporate existence, but neither may
Maybe you’re reading this, and you own an administratively dissolved Tennessee company (corporation or LLC) and you’re starting to sweat a little. You should. You may have years of unfiled Annual Reports due to the TN Secretary of State. Each unfiled Annual Report requires a filing fee of $300.00. You may also still owe Franchise & Excise Taxes (minimum $100 per year) or other taxes, penalties, or interest to the TN Department of Revenue, unless you have been granted an Annual Exemption and have, each year, filed your Annual Exemption Renewal, which has been granted, extending your Annual Exemption. From the time your LLC or corporation was administratively dissolved until now, you may owe $400.00 or more per year to the State of Tennessee, just because you assumed Administrative Dissolution “closed your business,” and, therefore, you never properly went through the process of legally winding-up your business. If this applies to you, please understand you are not alone, and there is something you can do about this.
Preparing to Put Down your Zombie Company
The first thing you need to do is contact the Tennessee Department of Revenue and get a tax clearance letter (more about what that is and why you need it, below). Our experience has been that the people you speak with on the phone when you call are surprisingly helpful, if you have the right information to give them. So, be prepared when you call!
You’re going to need the Federal Employer Identification Number (EIN) for the business, the business’s name, its registered address, and its registered agent information. Twice I have given the TN Dept. of Revenue the TN Secretary of State Control Number for a business, and twice I have been successful in having them look up a company using that number. The second time, however, the representative on the line informed me they weren’t “supposed to use that number to look up” companies’ information. They’re only supposed to use the Federal EIN. So, just be aware of that.
Once the Tennessee Department of Revenue representative brings up your account / file information in their computer, they will be able to review it and tell you whether your taxes are current (everything has been paid), or delinquent (you need to pay your taxes). If your taxes are delinquent, you will need to make them current before you can receive a tax clearance letter. If your taxes are current, you can have the Tennessee Department of Revenue representative fax you a tax clearance letter the same day. They’re that fast. Honestly, that surprised and impressed me. If your taxes are delinquent, you’ll have to call back and get your tax clearance letter sent to you (by mail or fax) once your taxes are made current.
You may be wondering what this “tax clearance letter” is. Sometimes the tax clearance letter is also called a “Certificate of Tax Clearance” or “Tax Clearance Certificate.” Essentially, the tax clearance letter is a written statement issued by the Department of Revenue clearing the business for closure, and stating that the business does not owe any delinquent taxes, penalties, or interest to the Department of Revenue. The TN Secretary of State’s office requires a tax clearance letter to be filed along with Articles of Termination.
That’s not all you need to do, though. In fact, you should read this Checklist for Closing Your Business, and then call Executive Legal Professionals and let us help you get started crossing things off this list. You can email Executive Legal Professionals right from our website or call us at (615) 669-6566.
Aim for the Head (Watch out! She’s a biter!)
That brings me to the final topic of this article—how to kill a corporation (or LLC). In order to effectively end the existence of a company, the authorized representative(s) of the company must file Articles of Termination with the TN Secretary of State. The Secretary of State’s office will then terminate the existence of the company, ending its existence. Until this is done, the company will continue to exist in an impaired state, which can create large liabilities for holders of ownership interests in the company—perhaps even liabilities without any commensurate benefit. Winding-up an administratively dissolved company in an orderly and timely fashion is, therefore, essential to the financial well-being of the holders of ownership interests in the company.
If you require assistance in winding up the affairs of your company, whether or not it has been administratively dissolved, you should contact a lawyer. He can help you effectively and permanently terminate the existence of your company and minimize your legal and financial liabilities in doing so. Letting a company “die on the vine” by being administratively dissolved and then doing nothing is as irresponsible as it is ineffective, because it doesn’t really die there. It just rots, festering with ongoing financial and legal concerns that become ever more expensive to address.
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