Part Three – Administrative Dissolution and Involuntary Dissolution

We’ve written about voluntarily dissolving the business, but there is another type of dissolution – administrative dissolution.  In Minnesota, a corporation may be subject to administrative dissolution if it fails to meet its annual corporate renewal filing requirements with the Secretary of State.  Under Minnesota law by December 31st each year a corporation (or limited liability company) must file a corporate renewal form either at the Secretary of State’s office or online.  It is simple, painless and free.

If the corporation fails to file its annual renewal in any calendar year, the Secretary of State files a certificate of administrative dissolution for that business.  Failed startups or even disbanded business may think that simply failing to file the annual renewal will automatically dissolve the business and thus protect them from their creditors.  However, nothing could be further from the truth!  Administrative dissolution suspends, but does not terminate the corporate existence. Thus creditors and claimants may bring actions or pursue enforcement against the corporation, and shareholders may be liable for distributions received in violation of the statute.  The lesson here is if you are closing down the business, don’t forget to take the appropriate steps and file the necessary paperwork for voluntary dissolution.

So, while we may be talking about dissolution, it is also important for the ongoing, viable business to remember to file its annual renewal with the Secretary of State.  I recommend either filing on the anniversary on the date you started your business, or by December 31^st of each year.  And, if for some reason you forgot, all is not lost, you can cure an administrative dissolution by filing the required corporate renewal form plus a small fee.

The third type of dissolution is the involuntary dissolution by shareholder action.  When a corporation acts unfairly or illegally, involuntary dissolution can be a remedy for minority shareholders, unpaid creditors, or even the Attorney General.  In this situation a court may dissolve the corporation, or worse grant equitable relief it deems just and reasonable.  I hope you never find yourself in this position as it is costly, rarely ends well and of course disrupts (and could possibly bankrupt) the business.