When dissolving a business, the officers of the company should only carry out business to the extent needed to complete any of the company’s outstanding obligations and to liquidate any assets. Other than that, if an officer of a dissolved corporation or limited liability company continues to do business under the company’s name, any liability will fall on that individual officer. In other words, the protection against financial debts or legal claims afforded to the officer by the corporate veil will no longer apply if the company has been dissolved. It is therefore very important to stay up to date on the status of your business.
In Florida, there are three ways a corporation can be dissolved: the first is by the company’s incorporators; the second is by the board of directors or the company’s shareholders; the third, and most relevant here, is an “administrative dissolution,” which is carried out by the Florida Secretary of State, either because the company failed to file its required annual reports or for other insufficient compliance with state corporate guidelines.
In contrast, an LLC is dissolved differently. A properly drafted LLC operating agreement should indicate in which situations the company could dissolve. However, if your LLC does not have an operating agreement, its dissolution would be governed by the Florida Revised Limited Liability Company Act. The Act states the circumstances in which an LLC may dissolve and also specifies that if an LLC goes 90 days without a member, without entry of decree of judicial resolution, or by filing a statement of administrative dissolution, then your LLC may be dissolved by a unanimous consent of its members. The good news is that administrative dissolution is usually temporary until the corporation or LLC takes care of the unfulfilled obligation. Notification of the dissolution will be made on the Secretary of State’s website, www.sunbiz.org, where all Florida enterprises are registered with the State. If a business has been administratively dissolved, the entity’s Sunbiz page will list the “Status” as “INACTIVE,” and the “Last Event” will say something along the lines of “ADMIN DISSOLUTION FOR ANNUAL REPORT.”
If you were not aware that the Secretary of State deactivated your company and you continue to operate while the company is “inactive,” any legal claims brought against the company, including outstanding debts, personal injury, breach of fiduciary duty, fraud, etc., can be brought against you personally. That is to say, the corporate veil may be pierced, you may be personally responsible for the business’ debts and liabilities, and business creditors may be able to put liens and encumbrances on your personal assets. In addition, even if the company is eventually re-instated because you corrected the issue that sparked the dissolution, you will still be personally liable for claims incurred during the period between the administrative dissolution and the reinstatement.
Of course, not all officers of the business will be liable for any misconduct during the dissolution period. Rather, only the officer who acts on behalf of the business while it is dissolved will incur personal liability. For example, if that officer signs off on a contract, creating an obligation that is eventually not met, the non-breaching party has a claim against the contract signatory, not all officers of the business or the business itself. A member of a dissolved business may also enter agreements during this period while knowing the risk- for example, if the officer is worried about losing important clients while the company is temporarily inactive, that officer may still choose to incur liability by entering a new contract.
The easiest way to avoid personal liability during an administrative dissolution is to make sure you comply with all of Florida’s corporate requirements to prevent administrative dissolution altogether. Nevertheless, it is good practice to regularly check your business’s status on Sunbiz to ensure your company remains active. If you are tying up your business’s outstanding obligations or liquidating its assets during this inactive period, be sure to avoid incurring any claims against you during this time as it will result in your own, individual and personal liability. If you have any questions or concerns regarding your company’s status, obligations, or dissolution process, it is best to consult with a business attorney.
One Response
Thank you for this article! Question: if I, as a sole proprietor, allowed my LLC to be administratively dissolved (but still perform the same work), do I need to change the name on my EIN# document to remove the “LLC” in my company name?