Could your business be at risk of dissolution because you unknowingly missed filing your business entity reports with the State of Indiana?
Indiana companies are required to file business entity reports with the State every other year. The due date for when an entity must file is established by reference to the date the entity was formed. A nominal fee is charged at the time of filing. The form of the report is short and can easily be completed without outside help. For convenience, the State allows businesses to file electronically at https://inbiz.in.gov/business-filings. The penalty for not filing is the administrative dissolution of the business entity by the State. Recently, the Secretary of State’s office advised business owners that advances in technology infrastructure will allow it to render administrative dissolution decisions within 5 months of a business entity report filing becoming delinquent. https://www.in.gov/sos/business/files/Administrative%20Dissolution%20
What does administrative dissolution mean for a business? Administrative dissolution is a process by which the State takes away the right, power, and authority of a business entity to conduct business within the State. In practical terms, administrative dissolution means that a business entity cannot access the court system to resolve disputes, cannot have a merger or other business reorganization recognized by the State, and equity holders cannot rely on the business entity to shield their personal assets from liabilities of the business. Administrative dissolution does not mean that officers from the State are likely to storm a business’ offices and forcibly shut down its operations. Many times, business owners remain unaware that their business entities have been administratively dissolved for a period of months or even years, especially if their business operations do not bring them into contact with the State for an extended period of time.
Until recently, Indiana has not restricted the opportunity for business owners to seek reinstatement as a remedy for administrative dissolution. Reinstatement typically involves filing missing business entity reports and paying fees and penalties associated with those missing reports. Earlier this year, Indiana adopted legislation limiting when reinstatement may be sought. https://www.in.gov/sos/business/files/Reinstatement%20Outreach.pdf. Under the new approach, business owners will have 5 years from administrative dissolution to file for reinstatement. After 5 years elapses reinstatement will not be available as a remedy. When reinstatement is not available, business owners will have no meaningful choices but to wind down the business entity, cover its outstanding liabilities and distribute out any remaining assets. Where the business entity that has been dissolved remains a going concern, very likely that will mean forming a new entity and transferring the assets and liabilities of the business to that new entity. That transfer, the structuring of which will be limited due to the transferor’s status as administratively dissolved, will have tax consequences.
For companies that currently find themselves administratively dissolved and that have been administratively dissolved for 5 or more years, the new legislation offers a grace period. To take advantage of the grace period, entities will need to submit applications for reinstatement to the State by July 31, 2018. After that, reinstatement will no longer be available to these companies.
Filing business entity reports used to be a nuisance with limited adverse consequences. If a business owner missed a filing or two, there would always be an opportunity to seek reinstatement to fix the situation. That has changed. Business owners who ignore the obligation to file business entity reports for too long will now face serious consequences that are not easily remedied.
Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.