Loss of Corporate Status

Consequences may be overturned if organization reinstates corporate status.

Key point: In many states, incorporated churches can lose their corporate status by failing to submit an annual corporate report to the secretary of state. Loss of corporate status can create a number of adverse consequences. However, in some states a church can avoid these consequences by "reinstating" its corporate status.

A Louisiana court ruled that a corporate officer was not personally liable for a corporate debt incurred when the corporation had "lapsed" for failure to file annual corporate reports with the secretary of state, since the corporation was later "reinstated." While the case involved a for—profit business, the court's ruling will be directly relevant to many churches. The officer entered into a contract in the name of his company during a three—year period during which the company's corporate status had "lapsed" for failing to file annual corporate reports. A trial court ruled that upon revocation of its corporate charter, the company had ceased to function as a corporate entity. Therefore, the officer was responsible for any debts incurred by the company during the period its corporate status was lapsed. The officer appealed, and a state appeals court reversed the trial court's decision. The appeals court pointed to a state statute specifying that a lapsed corporation's corporate status may be reinstated upon submission of an application for reinstatement to the secretary of state within three years of the revocation accompanied by a reinstatement fee. The statute further provides that "upon filing the current annual report and payment of the reinstatement fee … the certificate of reinstatement of such charter and articles of incorporation shall be retroactive and the charter and articles of incorporation shall continue in existence as though the revocation had never occurred." The court noted that

the issue to be decided by this appeal is whether debts incurred in the corporate name during the revocation of a corporate charter become the personal obligations of the corporation's sole shareholder despite the charter's subsequent reinstatement. We think not ….

[T]he trial court's ruling ignores the express language of the statute which provides that a charter's reinstatement "shall be retroactive and the charter and articles of incorporation shall continue in existence as though revocation had never occurred." While revocation of a corporation's charter has the effect of suspending corporate existence, the corporation itself is not dissolved, and the statute provides that corporate existence may be thereafter revived through compliance. The words "had never occurred" must mean what they say, "it never happened."

Under the nonprofit corporation laws of some states, a church's corporate status may lapse for failure to file annual corporate reports with the secretary of state. In such circumstances church leaders who are sued for obligations incurred while the church's corporate status was lapsed should review the applicable nonprofit corporation law to determine if there is a "reinstatement" provision. If so, is it available, and does it prevent personal liability while the church's corporate status was lapsed? Acadian Cypress & Hardwoods, Inc. v. Piazza, 664 So.2d 138 (La. App. 1995).

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