Involuntary Dissolution: Why States Dissolve Businesses and How to Fix It

What involuntary dissolution means

A voluntary dissolution is a decision the owners make and file. An involuntary dissolution is imposed: a state agency or a court ends the entity's active status. States use different words for it, including administrative dissolution, suspension, forfeiture and involuntary termination. The most common causes are administrative: a missed annual report or unpaid state tax.

It matters because an involuntarily dissolved or suspended business usually is not closed properly. Taxes and penalties can keep building, and the business may lose rights it needs to wind up.

Administrative dissolution in three states

Florida: missed annual report

The Florida Division of Corporations says a business that has not filed its annual report by the third Friday of September is administratively dissolved at the close of business on the fourth Friday of September. Reinstatement requires an application for reinstatement plus fees. A closed business does not need to file the annual report.

California: suspension and forfeiture

California's Franchise Tax Board (FTB) says a business can be suspended for failing to file or pay, and the Secretary of State can suspend or forfeit it for not filing a Statement of Information. A suspended business cannot legally do business, close or dissolve, sue or defend itself in court, or keep its name, and its contracts can be voidable. The FTB also lists a $2,000 penalty per year for failing to file within 60 days of a demand.

Texas: forfeiture for franchise tax

The Texas Secretary of State says that when an entity fails to file a franchise tax report or pay franchise tax, it forfeits the entity under the Tax Code. A domestic entity can also be involuntarily terminated for non-tax reasons.

How to fix an involuntary dissolution

Each state has a reinstatement or revival process, and all of them start with catching up on what was missed.

Reinstatement in Texas

A Texas entity forfeited for tax reasons can reinstate at any time by filing the missing reports, paying all tax, penalties and interest, and filing a reinstatement application with a tax clearance letter (Form 05-377) from the Comptroller. For an involuntary termination, there is no deadline, but the SOS says the entity is treated as having existed without interruption only if it reinstates within three years (36 months).

Revival in California

The FTB says to file all delinquent returns, pay all balances including penalties, fees and interest, and submit a revivor request (FTB 3557 LLC/BC).

Reinstatement in Florida

Florida requires an application for reinstatement and the fees listed by the Division of Corporations.

Dissolved by the state but want to close for good?

Being administratively dissolved is not the same as closing properly. In California, the FTB says a suspended business must be revived before it can dissolve. In general, if you mean to close, file the voluntary dissolution or termination the state provides, file final returns and wind up the business. That includes deciding what to do with the company's remaining assets, such as its records and data, before the entity ends.

Common questions