REAL ESTATE HELD BY CORPORATIONS AND LLCs: WHY IT’S GOOD TO KEEP YOUR ENTITY VALID

At Black, Slaughter & Black, we handle closings for developers, builders, and investors throughout North and South Carolina.  Too often problems arise when the title to the property has been left in an old, dissolved entity.  Here is how we handle the issue in North Carolina:

North Carolina allows business entities to convey property even after dissolution pursuant to statues governing the wrapping up of the business, so long as it is concluded in a reasonable amount of time (It is helpful that the law does not specify the duration, provide a limitation, or define a reasonable amount of time.  I have seen businesses dissolved for ten years properly convey title to a third party). If this scenario applies to you, do not panic.

However, there may be issues or problems that require reinstatement or creative lawyering.  These include:

  1. REVENUE SUSPENSION:

A caveat to the statute which allows you to convey property through a wrapping up of business exists where the business entity was subject to a revenue suspension.  While a revenue suspension can be a simple administrative error, it can also arise because of a missing tax return or missing tax payments.  In either event, sellers will need to have the revenue suspension lifted before proceeding to convey property.  In some cases, this may also require reinstatement and filing of missed annual reports with the North Carolina Secretary of State.

  1. NO BANK ACCOUNT; NO EIN:

Providing sales proceeds to an entity after a real estate closing can be a problem when a dissolved entity does not have a bank account established for the receipt of said proceeds or an EIN with which to open an account.

There are a couple of methods to solve this problem:

a). Reinstatement:

Reinstatement involves bringing the entity back to life.  Once revived, an entity can apply for an EIN and create a bank account as though they had never been dissolved.  There is some effort and cost involved in bringing a dissolved entity current through the North Carolina Secretary of State.  Consider if there will be future transactions which would make reinstatement worth the effort and cost.

b). Conveying to Members / Shareholders

A dissolved entity can convey any real property held by the entity to its shareholders or members.  Proceeds from the sale will be distributed to each member in their share of ownership once the real property closes.  This method requires, however, entity documents which reference ownership percentages.

  1. NO ENTITY DOCUMENTS

(BYLAWS / OPERATING AGREEMENTS / RESOLUTIONS / AMENDMENTS)

All title companies require verification of an entity’s signing authority.  If entity documents were never created, documents may be drafted prior to closing which show that authority.  If there have been changes in the makeup of the company which have not be documented, a title company may accept a certification and indemnity by the individuals claiming to have the remaining signing authority.

a). Certification and Indemnity

Some title companies are willing to allow a closing to proceed as long as the individuals claiming to have signing authority sign a certification and indemnity.  This document is approved on a case by case basis and subject to the discretion of the title company.  Those claiming to have signing authority would remain liable for future claims concerning the validity of the transfer.