A limited liability company is created under state law and does not exist until a certificate of organization is filed, and then approved by the state. A registered agent of the LLC pays an annual renewal fee for the LLC to remain active year after year. Seems easy enough right? Take care of the simple requirements, and then you are good to go! Unfortunately, forgetting to complete this simple task can cause major problems for the LLC.
Not renewing your LLC registration is a very common issue. The price of late or no payment penalties can be a major setback. For example, if the LLC is delinquent long enough the LLC could lose its name registration to a competitor, along with goodwill, and the expenses associated with rebranding the business. In addition, the LLC may have to refile as a new entity and have to pay all of the entity start-up and filing related costs. This restart may include new operating agreement, company name, legal paperwork, branding material, bank accounts, deeds, contract assignments and leases, to name a few. The long list of things that need to be redone is not appealing, especially when this is your second time around because of a failure to file an annual report and pay a nominal fee.
There is typically a timeframe in which an LLC can be renewed even if it is delinquent. In Utah you have two years to correct a delinquency before you have to refile as a new organization. Renewing the delinquent organization is not as easy as paying the filing fee because there is additional paperwork that must be completed under state law including a letter from the state tax commission indicating the entity is in good standing. When the LLC is reinstated after a delinquency in Utah the LLC is deemed to have been continually in existence as though the delinquency had not occurred.
If your LLC registration expires due to failure to pay the fees or complete all the requirements by the state, your entity will be administratively dissolved. Once your entity is dissolved you are only legally able to complete action necessary for the winding up and distribution of LLC assets to the owners. However, if you continue to conduct business you are deemed to be doing so as a general partnership. Partners in a general partnership are individually liable for the actions of the other partner and the partnership. In short, the failure to maintain proper registration can result in a loss of the company’s legal protection and the protections provided to the owners.
It is important to be on your game when running an LLC or any other business and it always helps to have an attorney to answer questions and keep you on track. Most attorneys provide a service for their clients that includes the attorney serving as registered agent and making sure the annual filing is completed. The concepts discussed in this article also apply generally to corporations, non-profit corporations, dba name registrations and partnerships.
JensenBayles, LLP provides a broad spectrum of legal services. Thomas J. Bayles has been actively providing advice in the areas of trusts, wills, probate and tax planning in the St. George market for over 20 years. Please visit our web site www.jensenbayles.com or call 435-674-9718 and ask for Thomas J. Bayles. The information in this article is for educational purposes only and is not intended to be construed as legal advice. Please contact an attorney for legal advice specific to your situation.