October 31, 2014

Out Of Compliance: Reinstate Your Company

out of complianceNo one starts a business with the expectation that it will fall into bad standing. However, things can happen. For example, in the flurry of building a business, a small business owner may forget to send in their annual report to the state – or they may not even realize that an annual report is required in the first place.

No matter how you find yourself in the situation, know that you can get your business back into good standing. And it may not be as hard as you’d think. Here’s what you need to know to get back into good standing, or keep your business out of trouble in the first place.

How Does a Company Get Into Bad Standing?

When a corporation or LLC fails to meet all the requirements of the state where it’s incorporated (or the state where it has a foreign qualification), it can fall into bad standing. Here are some common examples:

  • It fails to file its annual report or pay its annual fees on time (and perhaps for several years in a row)
  • The Registered Agent resigns from representing the company (perhaps because the company fails to pay the Registered Agent fees)
  • It fails to pay its state franchise taxes (business taxes)

What Does It Mean If Your Company Is In Bad Standing? 

Companies that are in bad standing may be administratively dissolved, placed in non-compliant status, or revoked by the state where they incorporated. In this case, the benefits of corporation or LLC formation (such as limited liability protection) are lost.

How To Reinstate Your Company? 

The specifics depend on your state, but generally speaking, you will need to file a reinstatement on behalf of the corporation or LLC in order to return to active compliant status. You may also have to file some additional documentation and pay fees to the state, depending on the reason why your company fell out of good standing in the first place. Here are the basic steps:

  • Identify why your company fell out if compliance (this can typically be accomplished by contacting the secretary of state office)
  • Submit reinstatement forms to the secretary of state office
  • Pay all outstanding fees due to the state (this can include overdue state franchise taxes)

When you reinstate your business, your corporation or LLC keeps the original filing date of formation. Reinstating your business means you can regain all the benefits of corporate/LLC status, including limited liability protection to safeguard your personal assets.

By reinstating your business, you can keep running your business without worrying about an uncertain legal status.

Ignoring A “Bad Standing” Isn’t A Good Option

If your company lost its good standing because you never paid your annual fees or franchise taxes, it may be tempting to just start over with a brand new business. However, keep in mind that while you may not be actively operating your original business, the state is still keeping tabs on it.

Any unpaid fees, taxes, and penalties will continue to accrue each year – until ultimately the state may place a levy on your personal bank account (since when a business has five shareholders or less, the owner often needs to act as a personal guarantor).

The moral of the story? If you discover your business is out of compliance or in bad standing, take the appropriate steps to correct the situation…and the sooner, the better.

In no time, your business will be back in good standing and you can move full steam ahead.

Full Steam Ahead Photo via Shutterstock

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Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

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