So, you just received a notice from the Secretary of State telling you that your company was “administratively dissolved.” How did that happen, and what should you do about it?

Like most states, business entities (corporations and limited liability companies chief among them) in Washington are authorized to do business from year-to-year. That means that, on an annual basis, those in charge of the company must file a very simple “annual report” and pay a relatively inexpensive renewal fee. If a company fails to do that within the time required, the Secretary of State will note the entity as have been “administratively dissolved.”

It is, nevertheless, relatively easy to reinstate an entity that was administratively dissolved. You simply pay the back fee, plus a penalty, and voila, the company returns to “good standing.” For this reason, administrative dissolution is not the end of the world.

But still, you should avoid it just the same, for at least two reasons:

First, owners of a company that fail to respect corporate formalities may lose the benefit of their “limited liability” protection through a doctrine known as “piercing the corporate veil.” A company that routinely fails to file an annual report is one that obviously ignores corporate formalities, and therefore jeopardizes those who own it.

Second, a company cannot be revived under any circumstance once five years lapse after having been administratively dissolved. When that happens, even without piercing the corporate veil, those who incurred liabilities in the name of the dissolved company risk being held personally responsible for the company’s debts. In effect, an administratively dissolved company that continues to do business and that is never formally revived is functionally the same as a sole proprietorship or a partnership.

Bottom line: return your annual report when its due. And when you’re late, quickly reinstate.

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