Say you have dormant corporations or LLCs that you haven’t done anything with in years. Should you keep them or trash them?
You may have heard that it is valuable to have an “aged” corporation or LLC. One of the questions often asked at the bank when your company gets a loan, or at the office supply store when you set up an accounts receivable, is how long ago did you establish the company? How old is your company? The assumption is the older the company, the easier it is to deal with other companies. A company that has a 50 year history has to be safer to deal with than one that was established yesterday. Right?
As a result, people who establish a corporation or LLC (entity) tend to keep the entity going even though it really isn’t active. In fact, a lot of people have an entity that was set up and has never been used. Every year they pay the state fee. Usually, they were sold the entity at some sort of seminar and the entity was established in Nevada, Delaware, or some “safe” state. BIG mistake! They got sold – but that’s another discussion. The folks have paid not only the state fees, but if the company is in another state, they are also paying the registered agent fees each year.
Should they continue to keep paying and maintain the entity? In almost every case the answer is shut the entity down NOW! The advantages of an aged entity are myths. I don’t care how old your little company is. Unless you can show millions of dollars in profit for the last three years, the owner – you – will have to sign personally for the bank loan, line of credit, accounts receivable, and everywhere else.
If you have a corporation or LLC taxed under Subchapter S or Chapter C of the IRS Code, and you haven’t been filing taxes, you’re in trouble. “Oh,” you may say, “but the corporation never even opened a bank account.” That doesn’t matter. The IRS has big penalties for every month the tax returns weren’t filed. It doesn’t matter that the company never earned a dime. People have come to me with $80,000 or more in IRS fines because they haven’t been filing.
Even if you do file, the entity exposes you to an audit risk. Once the IRS selects your little company for audit, they will look at every part of your personal and financial life. You may not think they can do that. But they can. And they will.
The list goes on and on as to why you need to get rid of your dormant companies. My YouTube video on shutting down a dormant LLC goes into more detail. Check it out.