Business DissolutionHannah Sheridan Loughridge and Cochran, LLP attorneys assist businesses when those businesses are faced with a corporation which needs to cease operations, or where a business has closed. While our attorneys do not participate in debtor bankruptcy filing, we can assist a business in following the statutorily mandated steps for dissolving a business. Our attorneys also represent creditors and shareholders who may wish to have a court create a receivership as a means of either operating a company during a dispute or of closing down a business in an orderly, non-bankruptcy manner.
Pursuant to North Carolina law, a corporate entity may be affirmatively dissolved by action of its board of directors, managers or shareholders, depending upon the corporate form of the entity. Key among the elements of a dissolution is the necessity of reconciling assets and liabilities of the entity and taking the steps necessary to wind up the business.
All too often, businesses which have been authorized by the North Carolina Secretary of State fail to conform to the annual reporting requirements or fail to remain current with the Department of Revenue. Failure to file annual reports can result in administrative dissolution – loss of corporate protections. This can be remedied within a five year period by filing annual reports for each of the years missed. Once re-instituted, the corporation and its officers regain the corporate protections retroactively. Revenue suspension is more punitive. Corporate protections are again lost upon issuance of the suspension, and any actions taken in the corporate name during a suspension become a personal liability for the officers. That liability remains even if the suspension is subsequently lifted.
Receivership mimics bankruptcy, but is a state law remedy. Chad Cochran and Nan Hannah have served in the role of receiver and/or counsel for receiver for a small company, while all of our attorneys have participated in various roles representing parties involved in a receivership action.
Frequently Asked Questions
What types of dissolutions exist?
There are two types of dissolution which exist within the North Carolina General Statutes – Administrative and Voluntary
Administrative Dissolution – Occurs after notice is sent by the Office of the North Carolina Secretary of State informing the registered agent of a deficiency in the submissions by the corporate entity. Most often, it is the failure to file requisite annual reports. Upon entry of the Administrative Dissolution, the officers of the corporate entity are no longer afforded the protections of the corporation.
Voluntary Dissolution – This form of dissolution comes as the result of action taken by the shareholders, members or board of a corporate entity and serves to put the world on notice that the corporate entity no longer exists or at least is being shut down. The corporate entity may and actually must continue to wind down its business in order to maintain the protections the corporation provided to its officers and owners.
What is a Revenue Suspension?
If a corporate entity fails to fulfill its tax obligations, the North Carolina Department of Revenue can notify the Secretary of State and issue a revenue suspension which results in the loss of all corporate protections. The key distinction for a revenue suspension is that all corporate liabilities incurred after a revenue suspension become personal liabilities of the officers of the (now former) corporate entity and that personal liability is not remedied by resolving the suspension.
What is receivership?
Receivership is a state court remedy similar to bankruptcy. A receiver is appointed by a Superior Court judge and operates pursuant to an order issued by the court. Generally, a receivership occurs when there is a dispute between shareholders or principals or when a creditor is trying to preserve assets of a debtor. The receiver takes over operational control of the corporate entity. Depending upon the nature of the dispute and the terms of the court order, the receiver either operates the entity or winds it down in an orderly fashion seeking to maximize preservation of the assets of the corporate entity.
Who pays a receiver?
The receiver is paid by the entity he/she is operating, but only after the court reviews and approves the receiver’s bills.
Does a receiver have to be an attorney?
No. Receivers may be attorneys, accountants, or others familiar with the operation of a business. However, because of the judicial interaction it is often practical for the receiver to be a lawyer so that the entity does not have to incur additional expense in hiring an attorney.
If you have a legal issue which may require the assistance of an attorney, please contact the lawyers at Hannah Sheridan Loughridge & Cochran, LLP at 919-859-6840.