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 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.
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.
Read More: What Is an Inactive Corporation?
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.
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.
- Digital Media Law Project: Articles of Incorporation
- Wolf, Baldwin & Associates, P.C.: Dissolution in PA - The Death Of A Pennsylvania Business Corporation
- Georgia Secretary of State: Frequently Asked Questions: Reinstatement Applications
- Justia.com: 2011 Louisiana Laws: Revised Statutes: Section 12:163
- Justia.com: 2010 Georgia Code: Section 14-2-1420
- Maine Legislature: Maine Revised Statutes: Title 13-C: Section 1622
- Justia.com: 2010 Alaska Statutes: Section 10.06.633
- Maine Legislature: Maine Revised Statutes: Title 13-C: Section 1422
Wayne Thomas earned his J.D. from Penn State University and has been practicing law since 2008. He has experience writing about environmental topics, music and health, as well as legal issues. Since 2011, Thomas has also served as a contributing editor for the "Vermont Environmental Monitor."