CORPORATE DISSOLUTION IN FLORIDA
Under Florida law, the dissolution of a corporation can occur for many reasons.
- A corporation can be dissolved by the actions of incorporators;
- A corporation can be dissolved by the board of directors and/or shareholders; and
- A corporation can be administratively dissolved, which is an action commenced by the department of the Florida Secretary of State for a number of reasons.
Regardless of the cause for the dissolution, Florida law sets forth the process for winding up the corporation, including the allowable actions by agents, officers and directors subsequent to the dissolution. Specifically, those individuals may not carry on any business except that appropriate to wind up and liquidate the business and its affairs. If a person enters into contracts or conducts other business in the name of a dissolved corporation, other than in connection with the winding up process, that person can be held personally liable for those contracts and business obligations.
When a corporation is administratively dissolved by the state, which happens quite often, “a director, officer, or agent . . . purporting to act on behalf of the corporation is personally liable for the debts, obligations, and liabilities . . . arising from such action and incurred subsequent to the corporation’s administrative dissolution.” Whether a corporation has been dissolved or not can be easily determined by searching the corporation name on the Florida Department of State’s website. That website will provide the status of the corporation and, if dissolved, the date of administrative dissolution. For any corporate activity commenced after that date, the person initiating that corporate activity can be held personally liable for that action if that person had actual knowledge of the dissolution status. The requirement for actual knowledge of dissolution is to protect an employee, for example, from being liable when that person would have no way of knowing that the corporation was recently dissolved. However, it is much more difficult for an officer and/or director to claim he or she had no such knowledge.
A person can be liable for actions taken on behalf of a dissolved corporation if the individual “knew or, because of their position, should have known of the dissolution.” A president, registered agent, and/or director would all be in a position where he or she should have known of the corporation’s dissolution at the time the dissolution occurred.
Under Florida law, a corporation can be reinstated if it remedies the issues and circumstances which led to its dissolution. However, reinstatement does not automatically relieve its officers and directors from any personal liability incurred by operating the business while dissolved.
Also, to impute liability on a certain officer or director for the corporate debt incurred during dissolution, that actual officer or director would have had to be the one who entered into the contract or obligation. Thus, an inactive officer or inactive director cannot be held liable for the corporate contracts made by another officer while the corporation was dissolved.
A contract or obligation entered into under the name of a dissolved corporation happens more often than one may think. For example, an officer may have neglected to file the annual report or the officer may have plans to eventually reinstate the company once he or she has time to cure its defect. Consequently, the officer continues operating the business for months while it is dissolved.
In these situations, the damaged party can bring its claim against the individual officer and/or director by naming that person as a defendant in any ensuing legal action and the remedy can be sought against any individual who is personally liable for the corporate action under these circumstances.
Assuming that the corporation intends to remain active, the best way to avoid administrative dissolution and personal liability for officers, directors or shareholders would be to make sure that the corporation selects a responsible registered agent that will remind the corporation to file its annual report.
In the event that the corporation intends to dissolve and cease its business activities, officers, directors or shareholders can either comply with Florida law as to the proper way to dissolve a company or refrain from conducting any business activities.