Business owners frequently have no idea that the status of their company has been terminated. It may even take years for them to discover there is an issue! More often than not, forfeiture of a company’s existence is discovered during some critical moment, such as the purchase or sale of the business or the filing of a lawsuit, resulting in owners and attorneys scrambling to reinstate the business entity’s privileges.
In June of 2015, the Secretary of State a record number of over 79,650 corporations, limited liability companies, professional associations and limited partnerships in Texas were involuntarily terminated.
While the Texas Comptroller sends out notices to companies letting them know their franchise taxes are past due and the company is delinquent, in many cases, the business owners never receive these notices. The address on file with the Texas Comptroller’s Office may no longer be a valid address for the business or the contact person has moved or is no longer associated with the company.
If the delinquency is not cured, then the Texas Comptroller declares the company status as “Franchise Tax Involuntarily Ended” and the Texas Secretary of State then declares the company’s status as “Forfeited Existence”.
There are 4 serious problems caused by having a company’s existence forfeited:
- The company does not have the right to sue or assert a counter claim in Texas courts.
- The company’s name may no longer be available by the time the company discovers there is a problem and takes the necessary steps to reinstate the company.
- The owners and officers are personally liable for the obligations of the company during the time the company’s status is forfeited. Even if the company is later reinstated, this personal liability cannot be retroactively removed during the time the company’s existence was forfeited.
- The lapse in the existence of the entity can cause significant issues when the business is sold.
There is a proper procedure for winding up the affairs of the company and terminating its existence which should be followed if you need to shut down your business.
Periodically check the franchise tax account status of your business with the Texas Comptroller’s Office to verify that your company’s status is “Active,” which means it has the right to transact business in Texas.
For more information, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or email@example.com.