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Issue  7  Article  12
Published:  2/1/1996

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Dissolution and Suspension of Corporations
Edmund T. Urban

1. Types of dissolution and suspension - generally

There are various types of dissolution or suspension of corporations under current law: (a) voluntary dissolution under G.S. Chapter 55 by a corporation and directors or by directors and shareholders; (b) administrative dissolution under G.S. Chapter 55 by the Secretary of State for certain reasons; (c) judicial dissolution under G.S. Chapter 55 by the Attorney General, a shareholder, a creditor or a corporation for certain reasons; and (d) suspension under G.S. 105-230 for failure to comply with certain provisions of G.S. Chapter 105.

2. Voluntary dissolution under G.S. Chapter 55

(a) Dissolution and effect

This type of voluntary dissolution is effective upon the effective date in the articles of dissolution filed with the Secretary of State. G.S. 55-14-01(b); G.S. 55-14-03(b).

G.S. 55-14-05 outlines the effect of dissolution. The corporation continues to exist, but cannot continue business except to wind up and liquidate business. G.S. 55-14-05(a). This can include disposing of property to shareholders or property that will not be distributed to shareholders. Dissolution does not automatically transfer title. G.S. 55-14-05(b)(1). It does not prevent commencement or continuation of legal actions by or against corporations. G.S. 55-14-05(b)(5), (7). After the end of the tax year in which the dissolution occurs, the corporation is not subject to annual franchise tax except in certain circumstances. G.S. 55-14-05(c).

(b) Revocation of dissolution and effect

Dissolution can be revoked under G.S. 55-14-04 by properly delivering articles of revocation to the Secretary of State. G.S. 55-14-04(c). Revocation is effective upon the effective date of those articles. G.S. 55-14-04(d). The revocation relates back to and takes effect as of the effective date of the dissolution under G.S. 55-14-01(b) and G.S. 55-14-03(b). G.S. 55-14-04(e). The corporation: "resumes carrying on its business as if dissolution had never occurred, subject to the rights of any person who reasonably relied to his prejudice upon the filing of the articles of dissolution." G.S. 55-14-04(e).

Therefore, if the effective date of a dissolution is January 15, 1996; the corporation gives a deed on January 17, 1996 which is recorded that day; and the effective date of the revocation is February 14, 1996, the revocation relates back to January 15, 1996 pursuant to G.S. 55-14-04(e) and the conveyance is valid.

3. Administrative dissolution under G.S. Chapter 55

(a) Dissolution and effect

The Secretary of State may commence this type of dissolution for any of several reasons including failure to deliver annual reports to the Secretary within 60 days after its due date, expiration of the corporation's period of duration and failure to pay fees, etc., due under Chapter 55. G.S. 55-14-20. This dissolution is achieved by the Secretary signing a certificate of dissolution setting forth the grounds and the effective date and the Secretary must then file and mail a copy of it to the corporation. G.S. 55-14-21(b). G.S. 55-14-05 (effect of dissolution) discussed in 2(a) above applies. G.S. 55-14-21(c). G.S.

55-14-04 (revocation of dissolution) discussed in 2(b) above does not.

(b) Reinstatement and effect

G.S. 55-14-22 applies to reinstatement following administrative dissolution. The corporation can apply for this within 2 years after the effective date of the dissolution because either grounds for dissolution did not exist or have been removed. G.S. 55-14-22(a). The application must also include a certificate from the Department of Revenue stating that all taxes have been paid. G.S. 55-14-22(a)(4). The Secretary can then cancel the certificate of dissolution, file an original certificate of reinstatement containing the effective date of reinstatement and mail the corporation a copy. G.S.

55-14-22(b). (If the Secretary denies an application for reinstatement, G.S. 55-14-23 sets forth an appeals procedure.) When the reinstatement is effective, it relates back to and takes effect as of the effective date of the dissolution with the same effect or result as set forth in G.S. 55-14-04(e) discussed and quoted in part in 2(b) above. G.S. 55-14-22(c).

4. Judicial dissolution under G.S. Chapter 55

(a) Dissolution and effect

This proceeding involves a court action the procedure for which is outlined in G.S. 55-14-31. G.S. 55-14-30; G.S. 55-14-31. Venue is where the principal office is or was last located. G.S. 55-14-31(a). A receiver for the corporation can be appointed. G.S. 55-14-31(c); G.S. 55-14-32. The court order shall describe the receiver's powers. G.S. 55-14-31(c); G.S. 55-14-32(c). These powers can include the power to dispose of corporate assets at public or private sale and to exercise all corporate powers to the extent necessary to manage the corporation. If a grounds for dissolution are found to exist, the court may enter a decree of dissolution specifying the effective date of dissolution and the clerk shall deliver a certified copy to the Secretary of State who shall file it. G.S. 55-14-33(a). Winding up under G.S. 55-14-05, discussed in 2(a) above, is permitted. G.S. 55-14-33(b). Upon liquidation of a corporation, the portion of the assets distributable to a creditor or shareholder who is unknown or cannot be found shall be disposed of in accordance with Chapter 116B. G.S. 55-14-40. (Pursuant to G.S. 116B-1 real estate vests in the Escheat Fund. Also, see G.S. 116B-2.)

(b) Reinstatement

There are no statutory procedures for reinstatement.

5. Suspicion under G.S. Chapter 105

(a) Suspension and effect

G.S. 105-230 applies to a corporation or a limited liability company and deals with suspension of the entity's articles of incorporation, articles of organization or certificate of authority, as appropriate. The reasons for suspension are failure to file any report or return or to pay any tax or fee required by Subchapter I of Chapter 105. The entity's powers conferred by the suspended document "terminate upon suspension." The Secretary of State is required to notify the entity.

G.S. 105-231 sets forth the penalty for exercising functions after such suspension. A fine of not less than $100.00 nor more than $1,000.00 can be recovered against any person violating G.S. 105-230 and G.S. 105-231. Further, G.S. 105-231 provides: "Any act performed or attempted to be performed during the period of suspension is invalid and of no effect."

In our view, case law indicates that if a purchaser for value or lender for value (and such a party's agent or attorney) is unaware of the suspension, the purchaser or lender will take its interest free of the seemingly clear results of that portion of G.S. 105-231 quoted above. Parker v. Life Homes, Inc., 22 N.C. App. 297, 206 S.E. 2d 344 (1974); Page v. Miller, 252 N.C. 23, 113 S.E. 2d 52 (1960). Therefore, if a suspension occurs on January 15, 1996 and the closing attorney or purchaser finds out about the suspension, G.S. 105-231 would invalidate any subsequent deed, deed of trust or other transfer by the dissolved corporation. Subsequent reinstatement under G.S. 105-232(a) discussed in 5(b) below would arguably have no helpful effect.

(b) Restoration of rights, receivership, and liquidation - effect

G.S. 105-232 sets forth lengthy provisions pertaining to restoration of rights, receivership and liquidation.

Pursuant to G.S. 105-232(a), if the entity complies with all requirements of the Subchapter and pays all taxes, fees or penalties due it and pays a $25.00 fee to the Secretary of Revenue to cover costs of reinstatement, the entity will be entitled to exercise its powers. The reinstatement is made upon the records of the Secretary of State and the Secretary notifies the entity. Reinstatement does not relate back. Compare the statutes in 2 and 3 above.

G.S. 105-232(b) deals with a G.S. 105-230 suspension where the entity "has ceased to operate as a going concern." In such a case, if there remains an interest in property held in the name of the entity, "any interested party" may apply to the superior court for appointment of a receiver. All stockholders, members or their representatives or next of kin shall be made parties. If someone's whereabouts are unknown, service can be effected by publication. Infants or incompetents have a guardian ad litem appointed for them. The receiver may (1) sell the property interest upon the terms ordered by the court; (2) apply the proceeds to debts and (3) distribute the balance to the appropriate parties. The receiver's deed should be indexed under the name of the corporation. G.S. 161-22.1.

(c) Old law under G.S. Chapter 105

Prior to the law's change (effective July 12, 1991), there was a five year limit on reinstatement after dissolution.

6. Contact Phone numbers

The number for the Secretary of State's office - corporations is:

(919) 733-4201. The Department of Revenue's number is: (919) 733-8510.

It should be noted that a certificate of existence of a domestic corporation or a certificate of authorization for a foreign corporation can be obtained and can be conclusively relied upon. G.S. 55-1-28.

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