Why Wind-Up Measures & Proper Dissolution Matter

Just as starting your business requires specific state filings, closing your business for good has its own set of requirements, namely: dissolution and various wind-up measures. Many business owners, however, mistakenly believe that dissolution and wind-up are a waste of time. The business is closed, after all, so what does it matter?

Failing to properly dissolve and wind-up your business leaves the door dangerously open to corporate identity thieves, a fact that many entrepreneurs are not aware of.

Let’s take a look at how identity thieves take advantage of businesses that have not been properly dissolved and wound-up.

Identity Theft of an Inactive Company

  1. Your Company Falls Out of Compliance

    When you fail to file Articles of Dissolution after closing your business, the Secretary of State will assume that your business is still active. When it doesn’t receive an Annual Report, your company will eventually be administratively dissolved and placed onto an inactive companies list.

  2. Identity Thieves Reactivate Your Business

    Corporate identity thieves can easily reactivate your business by filing reinstatement paperwork with the Secretary of State. New filings can be made, changing addresses and registered agent information, effectively shutting you out of your business without you even knowing.

  3. Thieves Apply for Lines of Credit

    With your business newly reinstated, thieves can now easily begin applying for lines of credit, opening accounts, and making purchases. You are not even aware these accounts are being opened and used.

  4. The Thieves Walk Away

    In many instances, corporate identity thieves will use lines of credit to purchase large orders of items that can be easily resold online, such as televisions or stereos. This is one of the main appeals of corporate identity theft, because lines of credit extended to businesses are generally far larger than ones extended to individuals, and because large orders from businesses are rarely questioned.

    Once the purchases have been made, the thieves walk, leaving behind a slew of debts.

Perhaps what’s most disturbing is that this process isn’t even very hard. Filings can usually be done online, and Secretary of State offices do not follow up to ensure that filings are being made by qualified individuals.

More elaborate schemes can be achieved by adding simple and inexpensive extras: virtual offices for “real addresses” and VOIP phone numbers for “company contact information.” Modern technology allows identity thieves a wide range of options for creating the veneer of reality.

In addition, while you would imagine that credit lenders would do their due diligence before extending credit to a business, the truth is that this rarely happens. In the eyes of the lender, a “legitimate” company is requesting credit, which is usually all it takes.

Being Held Personally Liable

In the scenario above, corporate identity thieves reactivate your business with the Secretary of State, but the reality is that this isn’t even necessary. Savvy thieves can simply take the information from the documents in the public record and use it to open lines of credit. It is incredibly rare for a credit lender to check if your company is active and in good standing or not.

If this happens, it’s a worst-case scenario. Inactive companies offer no liability protection. This means that when the thieves finally walk away, the debts that they’ve racked up will be tied to you. And because your company no longer provides liability protection, debt-holders can come after you and your personal assets to satisfy the debts.

If you are closing your business, be sure to file Articles of Dissolution in every state where you do business and follow through with all proper wind-up measures. Doing so will ensure that your business stays clear of the no-man’s land of “inactive” businesses waiting to be taken advantage of.