Shareholder Liability During Periods of Charter RevocationJanuary 6, 2012 – Articles ACC Focus of the New Jersey Chapter
This article addresses the issue of shareholder liability during periods when a corporation’s charter has been revoked. Many state statutes, including New Jersey’s, allow for revocation on administrative bases such as failure to file annual reports or nonpayment of franchise taxes. N.J.S.A. §14A:4-5(5); N.J.S.A. § 54:11-2. Often a corporation will not know its charter has been revoked until it requires a good standing certificate as part of a transaction. Once these issues are identified, corporations typically seek to have the charter reinstated, which in the case of revocations due to failure to file annual reports involves paying various fees and obtaining a certification of the Director of the Division of Taxation, and in the case of revocations due to nonpayment of taxes, involves paying various fees to the Secretary of State. If the corporation has continued to act in the normal course during the revocation period, and assuming it has not engaged in conduct that would permit piercing of the corporate veil, can shareholders be liable for corporate obligations incurred during the revocation period?