When a business entity is no longer needed, has completed its business dealings, has completed its job in a foreign State, or even if it was never used for anything, it is very important that it follows the legal steps in “winding itself up” as a legal entity (dissolution / cancellation) or as a foreign entity (withdrawal).
All corporations, limited-liability companies, limited partnerships, limited-liability limited partnerships and other business entities are legal entities which can only be dissolved through formal action -- not by a letter or phone call. You remain liable for all taxes, assessments, fines, penalties and interest until you receive a certificate of dissolution from the Secretary of State.
Withdrawal is when a foreign entity informs a State where it is qualified to transact business in (foreign qualification) that it is no longer doing business and wishes to remove itself from the State and cease any taxation and reporting requirements. The entity then must file state approved documents. Once the State has approved the withdrawal, the entity is no longer recognized in the State nor does the entity need to maintain that State's annual requirements for compliance or taxes. Some entities that remove themselves in the middle of the year may still be required by some States to file a final tax return with the State. The importance for a foreign entity to file a withdrawal is so that it is no longer required to file documents or tax returns for a State that is not generating profit for the legal entity.
Dissolution is when a legal entity informs the State of Incorporation that it no longer wishes to be a legal entity and is winding up all business affairs within that State. This is also known as a Cancellation to other business entities such as Partnerships. Dissolving or cancelling an entity legally with the State of Incorporation is extremely important to both the entity and financial interest holders. When an entity pays its annual fees as the State may require, it is also paying for the protection of the state’s statues. Once the entity stops filing its annual reports it in turn has stopped paying for any protections the state’s statutes may offer. This means that if an entity or its interest holders claim that the entity is no longer functional and stops paying the annual fees, it is no longer protected by the State. If 2 years after the entity stops paying annual fees ends up in a lawsuit of business dealing, the interest holders can be held personally responsible for the lawsuit. The interest holders could also be held personally responsible for any outstanding debts owed by the corporation.
We at InCorp support the consensus of the legal community and advocate properly and statutorily dissolving, cancelling or withdrawing business entities in accordance with the laws of the State. If you would like more information or would like to dissolve, cancel or withdraw a business entity, please contact us at 800-2-INCORP.