The Louisiana Business Corporation Act (“LBCA”) became effective on January 1, 2015. The changes to Louisiana corporation law embodied in the LBCA are extensive, especially in the areas of dissolution and termination of a corporation.
The LBCA allows corporations to terminate by simplified articles of termination if the corporation: (1) does not owe any debts; (2) does not own any immovable property; and (3) has not issued shares or is not doing business. Under the old law, “dissolution by affidavit” provided a similar option, but after dissolution, the shareholders became personally liable for any debts or claims against the corporation. Under the LBCA’s simplified termination procedure, no such liability attaches to the shareholders. Corporations which undergo a simplified termination may take advantage of reinstatement, but they are not entitled to the claim peremption benefits that arise from formal dissolution.
Initially, it should be noted that the LBCA has made an important change in terminology. Unlike the old law, dissolution under the LBCA does not terminate the existence of the corporation, nor does it change who has authority to act on behalf of the corporation. Rather, the effect of dissolution is to change the official purpose of the corporation from the carrying on of business to the winding up of its affairs. Formal dissolution under the new law begins by filing articles of dissolution with the Secretary of State. After the corporation has been liquidated, the existence of the corporation is terminated by filing articles of termination with the Secretary of State.
An important tool now available to a dissolved corporation is the ability to dispose of both known and unknown claims. When a dissolved corporation knows of possible claims against it, the corporation may send a written notice of its dissolution to the claimants stating that they have 120 days by which to submit a claim to the corporation. Claims that are not submitted to the corporation before the deadline are extinguished by peremption. Timely but rejected claims are perempted unless the claimant commences a proceeding to enforce the claim by the deadline in the rejection notice, which may not be fewer than 90 days. With respect to unknown claims, a dissolved corporation may establish a three-year (3) peremptive period by publishing a notification of its dissolution in a newspaper in the parish of its principal office or, if none, its registered office. Through this method, a claim is perempted unless the claimant commences a proceeding to enforce the claim within three years of the publication. Corporations which are likely to have outstanding claims at the time of dissolution should take advantage of these claim peremption mechanisms under the new law.
Another newly-added feature allows a corporation to satisfy any claims that are contingent, unknown to the corporation, or are otherwise expected to arise after the effective date of dissolution by posting security in the amount and form ordered by a court after a hearing. As a result, these claims may not be enforced against shareholders who received assets in liquidation.
Claims that are not perempted or otherwise disposed of by any of the methods above are enforceable against the undistributed assets of the corporation and shareholders who received assets in liquidation. Importantly, a shareholder’s total liability for all claims may not exceed the total amount of assets distributed to the shareholder.
After the articles of termination have been filed, a corporation is deemed to no longer exist except for the limited purpose of dealing with any unresolved corporate assets or debts. Of course, placing an otherwise non-existent corporation in control of unresolved assets or debts presents the problem of finding a person with authority to act on behalf of the terminated corporation. The new law addresses this issue in two ways. First, the former shareholders of the terminated corporation can elect to have the corporation retroactively reinstated within a period of 3 years from its termination. Second, if reinstatement is not an option, then any interested party can apply to have a liquidator appointed on behalf of the corporation.
Finally, a corporation may also be terminated through an “administrative termination” by the Secretary of State. This form of termination replaces charter revocation under the old law, but corporate officers should be aware of the new filing deadlines. Whereas the old law effectively gave corporations three years to file annual reports, administrative termination now takes place after only 90 days from the annual report filing deadline. The Secretary of State must provide at least 30 days’ written notice before termination. Corporations that are administratively terminated have the option of retroactive reinstatement, which is available for 3 years.
The LBCA’s changes in the areas of dissolution and termination provide corporations with different options, each carrying different benefits. Consider your options before you terminate your corporate life.