February 2000

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

 

SAM MANN 

Just before Christmas, Sam Mann passed away after a difficult battle with cancer.  HE was 39.  Sam served as Vice President located in our Wilmington, North Carolina branch, giving outstanding service with that sense of humor all of us who knew him came to treasure.  The way that Sam handled his illness courageously, all the while doing his job so effectively as long as he could, was an inspiration to us all.  Sam also devoted a great deal of time to the North Carolina Land Title Association.  Four months before his passing, Sam was elected President of the association, serving unselfishly when it would have been very understandable not to have done so.  He was active in leadership positions in his church.  As Gary Chadwick, Sr. Vice President serving with Sam in Wilmington, has said, Sam embodied all of the very best of virtues that a young man can possess.  He was and will remain, an inspiration to all that knew him.  And, he will be missed. 

Sam is survived by his wife, Kathy, and his children, Austin, Mary Ashburn and Charlie. 

Because of Sam’s great concern about the education of his three young children, a trust fund has been set up through Wilmington Civitan Club, Trustee, located at the Wilmington Civitan Club, P.O. Box 264, Wilmington, North Carolina, 28402.  

CORPORATIONS AND LIMITED LIABILITY COMPANIES – DISSOLUTION AND SUSPENSION 

1.     General Comments 

There are several statutes pertaining to corporate and limited liability company (LLC) dissolution and suspension.  Chapter 55 pertains to dissolution of corporations, Chapter 55A pertains to dissolution of non-profit corporations, Chapter 57C applies to dissolution of LLC’s and Chapter 105 pertains to suspension for failure to comply with certain state tax law requirements.  These issues are particularly important when the corporation or LLC is making the conveyance to be insured.

2.     Corporate Voluntary Dissolution; Revocation of Dissolution 

A voluntary dissolution can be accomplished by (1) the incorporators or directors or (2) the board of directors and shareholders.   G.S. 55-14-01; G.S. 55-14-02; G.S. 55A-14-01; G.S. 55A-14-02. 

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. 55A-14-01(b); G.S. 55A-14-03(b).

The effect of dissolution is set out in G.S. 55-14-05.  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 disposing of property that will not be distributed to shareholders.  Dissolution does not 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 unless it engages in business activities not appropriate to winding up and liquidation.  G.S. 55-14-05(c).  For non-profit corporations, see G.S. 55A-14-05.

Under G.S. 55-14-04, dissolution can be revoked by properly delivering articles of revocation to the Secretary of State.  G.S. 55-14-04(c).  The revocation must occur within 120 days after the effective date of the dissolution.  G.S. 55-14-04(a).  Revocation is effective upon the effective date of the articles of revocation.  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) or 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).

For example, if the effective date of a dissolution is January 3, 2000; the corporation gives a deed on January 10, 2000 which is recorded that day; and the effective date of the revocation is February 8, 2000, the revocation relates back to January 3, 2000 pursuant to G.S. 55-14-04(e).  The conveyance is valid. 

For non-profit corporations, see comparable statutes in G.S. 55A-14-03 and –04.

3.     Corporate Administrative Dissolution; Reinstatement 

This type of dissolution may be commenced by the Secretary of State.  The reasons include being delinquent in delivering its annual report, 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 toe the corporation.  G.S. 55-14-21(b).  G.S. 55-14-05 (effect of dissolution) applies.  See G.S. 55-14-21(c).  G.S. 55-14-05 is discussed in 2 above. 

For comparable provisions pertaining to non-profit corporations, see G.S. 55A-14-20 and G.S. 55A-14-21. 

G.S. 55-14-22 applies to reinstatement following administrative dissolution.  Prior to July 1, 19998, the corporation could apply for this within 2 years after the effective date of the dissolution because either grounds for dissolution did not exist or had been removed.  For reinstatement on or after July 1, 1998, the application must occur not later than 5 years after the effective date of the dissolution.  G.S. 55-14-22(a).

(Note: See Robinson, Robinson on North Carolina Corporate Law, 28-7 which discusses this point.  In 1996, the legislature extended the effective date of the two-year limit from July 1, 1005 to July 1, 1997. In 1997, the legislature increased the period from two to five years within which application for reinstatement can be submitted. N.C. Sess Laws 1997, c. 485 1, effective July 1, 1998, amending G.S. 55-14-22(a).  G.S. 55A-14-22(a) and G.S. 57C-6-03(c), the latter pertaining to LLC’s were similarly amended.)  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 2 above.  G.S. 55-14-22(c). 

For comparable provision pertaining to no-profit corporations, see G.S. 55A-14-22 and 23

4.     Corporate Judicial Dissolution 

This proceeding involves a court action.  The procedure is outlined in 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 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.)  There are no statutory procedures for reinstatement.

5.     LLC Dissolution 

G.S. 57C-6-01 deals with LLC dissolution.  Judicial dissolution procedures are set forth in G.S. 57C-6-02.1 and a receiver can be appointed.  The receiver can be authorized by the court to dispose of assets and can exercise all powers of the LLC through or in the place of the LLC’s managers to the extent necessary to manage the affairs of the LLC.  G.S. 57C-6-02.2(c).  A decree of dissolution will be filed with the Secretary of State.  G.S. 57C-6-02.3. 

Administrative dissolution is outlined in G.S. 57C-6-03, with a certificate of dissolution being filed with the Secretary of State.  The LLC can apply for reinstatement within 5 years after the effective date of administrative dissolution.  Procedure is governed by G.S. 55-14-22, 23 and 24 mentioned in part above.  G.S. 57C-6-03(c). 

G.S. 57C-6-04 deals with winding up.  The managers are to wind up the business.  If there are none, the legal representative or successor to the member whose event of withdrawal resulted in the dissolution can wind up.  The court may wind up or appoint a representative to do so.

6.     Suspension under G.S. Chapter 105

G.S. 105-230 applies to a corporation or a limited liability company and deals with suspension of the entity’s articles of incorporations, 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 1, 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. 

The statute 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 the statute.  Further, G.S. 105-230(b) provides: “Any act performed or attempted to be performed during the period of suspension is invalid and of no effect.”

In The Title Company’s view, case law seems to indicate 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. 105-230(b) 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 3, 2000 and the closing attorney or purchaser finds out about the suspension, G.S. 105-230(b) would invalidate any subsequent deed, deed of trust or other transfer by the suspended corporation.  Subsequent reinstatement under G.S. 105-232(a) discussed below would arguably have no helpful 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 the 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 will 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.

Prior to the law’s change (effective July 12, 1991), there was a five-year limit on reinstatement.  There is no such limit today.

7.     Contact Phone Numbers 

The number for the Secretary of State’s office – corporation is: (919) 733-4201.  The Department of Revenue’s number is: (919) 733-8510, but a number where this matter in particular is dealt with is: (919) 733-4644.

It is noted that a certificate of existence of a domestic corporation or a certificate or authorization for a foreign corporation can be obtained and can be conclusively relied upon .  G.S. 55-1-28.  Non-profit corporation and LLC statutes have similar provisions.

8.     Conclusion 

The Title Company will work with you in resolving such matters, from a legal point of view and an underwriting point of view.  Give us a call.

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