by Kathy Tremmel, Business Attorney
It is possible your company’s existence has been forfeited – and you don’t even know it!
The Texas Secretary of State Office terminates entities when they fail to pay franchise taxes or file necessary reports with the Texas Comptroller’s Office. In June of 2014, the Secretary of State terminated the existence of a record number of over 65,000 corporations, limited liability companies, professional associations and limited partnerships in Texas.
Franchise taxes or No Tax Due Reports are due on May 15 of each year. If a company has not paid or filed the correct reports, the Texas Comptroller will send the company a notice that the taxes are past due and the company is delinquent. However, in many cases, the address on file with the Texas Comptroller’s Office is no longer a good address for the business. Often times, the contact person has moved or is no longer associated with the company. If the delinquency is not cured, then the Texas Comptroller will declare the company status as "Franchise Tax Involuntarily Ended" and the Texas Secretary of State will declare the company’s status as "Forfeited Existence".
Frequently, the owners of the company don’t have any idea the status of their company is no longer active. It may take years 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.
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.
If you need to shut down your business, there is a proper procedure for winding up the affairs of the company and terminating its existence which should be followed.
Periodically check your company’s franchise tax account status with the Texas Comptroller to verify that it is “Active” and has the right to transact business in Texas.
Article and information is courtesy of Kathy Tremmel, Business Attorney at Tremmel Law, PLLC. Amplify Credit Union does not endorse or guarantee the perspectives, the advice, the users, the businesses, or the products or services sold by any users or businesses that appear in this article.