What happens if you fail to pay your corporate taxes? In many states, the government will "dissolve" your company as a sanction for failing to pay taxes. This means you aren't allowed to operate your business. If you need to sue someone, the Courts can actually dismiss your lawsuit because you aren't authorized to do business. However, if the state has dissolved your company for failure to pay taxes and the company is no longer authorized to do business, it does not necessarily mean that your company is over. In fact, many states allow you to reinstate your company after you go through certain steps to bring your filings current.
Dissolution of Your Company
Dissolving your company is the legal name for the process of shutting down your company. It can be grouped into two main categories, voluntary and involuntary dissolutions:
- Voluntary: Your Company Chooses to Shut Down
- Involuntary: Your Company Fails to Pay Taxes
- Involuntary: A Shareholder Brings a Lawsuit to Dissolve the Company
In my business law practice, I encounter dissolutions in all three of these situations. When your company fails to pay its taxes or make the required filings with your state, you run the risk of involuntary dissolution.
How Do I Reinstate My Company?
When your company has been involuntarily dissolved, many clients come to me to figure out the next steps to reinstate their company. The first step is to determine the rules of the state where your company was formed and registered. Each state will have specific procedures and filings that are required, but as a general rule, you can anticipate that you'll need to do the following steps:
- Contact the state's corporation department and determine why your company was dissolved
- If it was dissolved because documents weren't filed or fees weren't paid, find out what wasn't filed or paid
- File the missing documents and make the payments required (you'll probably be assessed late fees or fines as well)
- When those documents are filed, check with the state to see what you need to file next - many times you'll receive a certificate or other confirmation that you've filed all of your outstanding paperwork/fees and will need to submit that to the state
- File any other documents and wait for the state to confirm that your company is eligible to be active again
The process will take time, and it's likely that there will be a significant financial outlay to get your company back into good standing status. Once you've gone through the process, you'll also want to make sure that you are prepared to move forward. If you missed certain filings, make sure you've got those filings in your calendar for the future so you don't make the same mistake again. It's an expensive way to operate a business to have to continually go through the reinstatement process.
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If your company has been dissolved or if you are interested in dissolving your company, let's set up a Legal Strategy Session to make sure you are ready to go through the process and take the next steps.