What is Administrative Dissolution?
Administrative dissolution is an involuntary process used by the Secretary of State or similar government agency to dissolve a corporation, LLC, or other business entity. If a company fails to file an annual report or other necessary compliance document by the deadline set by the Secretary of State, administrative dissolution can occur.
Reinstatement Process and Compliance Responsibility
Many states provide a path to reinstating a business once it has been administratively dissolved. Reasons for administrative dissolution include failing to file state-required reports, such as California’s statement of information and Texas’s franchise tax report. The responsibility for compliance with regulations lies with the Secretary of State or business office in each state, and non-compliance may lead to administrative action.
Voluntary, Involuntary, and Judicial Dissolution
There are 3 main ways a company can be dissolved – administratively, voluntarily, and judicially. Administrative dissolution is initiated by the Secretary of State for various reasons, while voluntary dissolution is an intentional action by shareholders, incorporators, or initial directors. Judicial dissolution is an involuntary dissolution ordered by a court of law.
Asset Distribution and Winding Up
In most cases of dissolution, a company’s remaining assets are distributed to its shareholders or members after paying off outstanding debts from the liquidation proceeds. The process of winding up involves settling debts, liquidating assets, and resolving any claims against the company to conclude its operations.
Legal Consequences and Protection of Shareholders
The legal consequences of administrative dissolution may vary, but typically, the company is limited to activities related to asset liquidation and business winding down post-dissolution. It is advisable to officially dissolve a corporation to protect shareholders from future liability, requiring approval from the Board of Directors and shareholders, followed by filing a Certificate of Dissolution with the state office.