Business and Corporate Law Section
Avoiding the Premature Death of an LLC
By Libby Anne Mercer

Oklahoma enacted the Oklahoma Limited Liability Company Act in 1992.1 The LLC act has been amended several times since then, most recently in 2006.2 Several provisions added as amendments carry serious consequences for an LLC that fails to comply with the act.

Added in 2001 is the requirement that each domestic LLC and each foreign LLC registered to do business in Oklahoma “shall” annually file a certificate with the Office of the Secretary of State. The certificate “shall confirm [the LLC] is an active business and include its principal place of business address.”3 Before Nov. 1, 2006, the due date for filing the annual certificate was July 1 of each year.4 Effective Nov. 1, 2006, the annual certificate is due “on the anniversary date of filing the certificate following the close of the calendar year.”5

Additionally, if the secretary of state acts as the registered service agent for an LLC, an annual fee is also required and is due on July 1 of each year.6 An LLC that fails to pay the annual fee is subject to the same consequences as the LLC that fails to file the annual certificate.7

The first failure to file the annual certificate results in a termination of “good standing as a domestic limited liability company or [entity] registered as a foreign limited liability company in this state.”8 Upon the loss of good standing, a domestic LLC or a foreign LLC registered to do business in Oklahoma, “may not maintain any action, suit or proceeding in any court of this state” until its “good standing” or “duly registered” standing has been restored.9  Importantly, no “successor or assignee” of the LLC is allowed to maintain any action on any “right, claim or demand arising out of business by the domestic” LLC after it ceased to be in good standing unless and until the LLC, “or any person that has acquired all or substantially all of its assets, has filed its annual certificate with the Secretary of State or paid its registered agent fee to the Secretary of State then due and payable, together with penalties.”10 Unfortunately, this may not be possible.

Unlike an Oklahoma corporation that has been suspended for its failure to pay franchise taxes, an Oklahoma LLC does not have unlimited time in which to seek reinstatement of good standing. A suspended corporation may be restored to good standing upon payment of all past due franchise taxes regardless of the number of years the tax has gone unpaid.11 The corporation may discover that its name now belongs to a different corporation, but it nevertheless has the ability to choose another name and be reinstated.12 An LLC lacks this option because the Oklahoma LLC Act limits an LLC to three years within which to obtain restoration of its good standing status.13 After three years of noncompliance with the filing and/or fee requirement, reinstatement is no longer available to an LLC. The LLC is dead and cannot be revived under any name!14

Section 2012.1 of Title 18 provides,

The articles of organization of a domestic limited liability company shall be deemed to be cancelled if the domestic limited liability company shall fail to pay the annual fee provided in Section 2055.2 of this title or a registered agent fee to the Secretary of State due under Section 2055 of this title for a period of three (3) years from the date it is due, the cancellation to be effective on the third anniversary of the due date. [Emphasis added]

This provision removes forever the ability of an LLC to be restored to good standing. Unlike the statute that suspends a corporation for failure to pay franchise taxes,15 the current LLC Act does not allow reinstatement of an LLC that has been cancelled by the secretary of state after three years of noncompliance. Neither the members of the deceased LLC nor its assignees or successors can revive an LLC whose articles of organization have been cancelled. Some of you must be thinking this conclusion is absolutely wrong. Here is why it is not.

An LLC whose articles of organization have been cancelled is no longer a legal entity. The day after the secretary of state administratively cancels the articles of organization, the name of the deceased LLC becomes available to anyone, other than a corporation, for the taking.16 The name of the deceased LLC may be reserved17 or may be assumed by any person who files articles of organization using the LLC name.18 Although the individuals who owned or controlled the deceased LLC could again file articles of organization using the same name (assuming the name was still available), the former LLC nevertheless would not be revived or reinstated. The secretary of state would issue a certificate of organization under a new identification number that is different from the identification number of the deceased LLC. The deceased LLC would not have been reinstated; rather, an entirely new entity would be created.

Another reason refiling would not restore the former LLC is that after cancellation of the articles of organization, the members of the deceased LLC would be free to decline to participate in the new LLC. Even if the new LLC used the old name, it is possible that the members could be different. An attorney representing an LLC that has been cancelled by operation of law who attempts to revive the LLC’s existence merely by filing new articles of organization under the name of the deceased LLC should consider carefully whether s/he has an ethical obligation to inform the members of the deceased LLC they may have the option to refuse to become members of the new LLC.

To illustrate a potential consequence of noncompliance with the act’s requirements, consider the following scenario from a recent case. John Doe formed an LLC naming himself, his wife Jane, and his mother, Mary Smith, as members of the LLC. John and Jane later became embroiled in an action to dissolve their marriage. John caused the LLC to sue Jane in an attempt to enforce an alleged contract that would have removed property from the marital estate. Jane moved to dismiss on the basis that the LLC had died after it failed to comply with the act for three consecutive years. The motion was granted; the court held the LLC no longer existed, and therefore, it lacked capacity to attempt to enforce the alleged contract.19

Many people associate the death of an LLC solely with “dissolution” and believe that an LLC is a legal entity until completion of the winding up of its business. Contrary to this belief, the Oklahoma LLC Act expressly sets out that the manner of death of an LLC is the cancellation of the articles of organization.20  The act states that a “limited liability company formed under this act is a separate legal entity, the existence of which as a separate legal entity continues until cancellation of the limited liability company’s articles of organization.”21  The act then provides that the articles of organization shall be cancelled by dissolution or merger,22 or shall be deemed cancelled after three years of failing to file the annual certificate and pay the associated fee.23  Consequently, an LLC is no longer a legal entity after its articles of organization have been cancelled, whether by dissolution, merger or by operation of law.

Those Oklahoma LLCs whose articles of organization have been cancelled by the secretary of state after three consecutive years of noncompliance, but who continue to transact business, have placed themselves in a Catch-22. The 10th Circuit Court of Appeals has held that an Oklahoma LLC whose legal existence has been terminated no longer exists for any purpose and lacks the capacity to wind up its affairs and dissolve.24 In In re Midpoint Development L.L.C.,25 articles of dissolution containing an immediate effective date were filed with the Oklahoma secretary of state. Midpoint Development L.L.C. thereafter filed a petition for bankruptcy relief. Creditors sought dismissal arguing that Midpoint was no longer a legal entity and was therefore ineligible to be a debtor. Midpoint claimed it had the right to wind up its affairs after dissolution. The 10th Circuit disagreed with Midpoint and concluded that “the winding up period should precede the effective date of the articles of dissolution, which ultimately terminates an L.L.C.’s legal existence by cancelling its articles of organization.”26

While In re Midpoint addresses the situation of an LLC that ceased to exist after the effective date of its articles of dissolution, the reasoning applies equally to an LLC that ceased to exist after three consecutive years of noncompliance with the reporting and fee requirements. An Oklahoma LLC whose articles of organization have been cancelled for any reason lacks the capacity to conduct business as a legal entity.

An additional problem encountered by those LLCs that, perhaps unknowingly, have been canceled by operation of law occurs when the nonexistent LLC attempts to sell real property. A certificate of good standing for the LLC likely will be required as a formality necessary to finalize the sale. Of course, when the LLC attempts to obtain the certificate from the secretary of state, it will be confronted with the unpleasant discovery that it no longer exists and cannot be reinstated as the same entity.27 This obviously presents a significant obstacle to a defunct LLC attempting to sell real property which remains titled in its name, especially in light of the 10th Circuit’s ruling in In re Midpoint Development L.L.C.28 that an LLC whose articles of organization have been cancelled no longer exists for any purpose.

The LLC Act also currently contains an inherent conflict for an LLC that has been suspended from good standing for less than three years and wishes to dissolve. The act gives “persons winding up the business or affairs” of an LLC the ability to “prosecute and defend suits.”29 This statutory provision does not expressly limit the dissolving LLC’s participation in lawsuits solely to legal actions necessary to wind down LLC affairs. However, a suspended LLC is expressly prohibited from maintaining any lawsuit in Oklahoma.30 It thus appears that a suspended LLC claiming to be dissolving and winding down its affairs might be allowed to file lawsuits while a suspended, but not dissolving, LLC is prohibited from doing so. However, as shown above, an LLC that is no longer a legal entity does not exist for any purpose and therefore lacks the capacity to participate in a law suit in any way.

The issues and conflicts apparent in the current provisions of the Oklahoma LLC Act discussed in this article will likely be resolved by the Oklahoma Legislature in 2008 in Senate Bill 1043. Until these statutory provisions are amended, practitioners who represent LLCs would do well to take careful note of the act’s requirements and to make sure their LLC clients do not die a premature death for failure to comply. 

1. Chapter 148, 1992 Oklahoma Session Laws.
2. Amended by Laws 2006, SB 1556, c. 22, § 1, eff. Nov. 1, 2006.
3. 18 O.S. §2055.2 (A).
4. 18 O.S. §2055.2 (B), superceded effective Nov. 1, 2006.
5. 18 O.S. §2055.2 (B), as amended effective Nov. 1, 2006.
6. 18 O.S. §2055(12).
7. 18 O.S. §2055.1. Nonpayment the first year results in loss of good standing. 18 O.S. ‘2055.2(G). Nonpayment for three consecutive years results in cancellation of the LLC’s articles of organization. 18 O.S. §2012.1(B).
8. 18 O.S. §2055.2 (D).
9. 18 O.S. §2055.2 (G).
10. Id.
11. 68 O.S. §1212.
12. A corporation that has been suspended for a number of years may discover that its name has been taken by another company. The secretary of state works closely with the Oklahoma Tax Commission, and after three years of suspension for failure to pay franchise taxes, the secretary of state apparently will make the corporate name available to the public under 18 O.S. §1006(A)(1)(a). If the corporate name has been used by another, a suspended corporation seeking reinstatement will be required to choose a different name.
13. 18 O.S. §2012.1.
14. 18 O.S. §2012.1.
15. 68 O.S. §1212.
16. 18 O.S. §2008(2)(a)(1) prohibits a new LLC from organizing under the same name or a name indistinguishable from “then existing limited liability companies.” In contrast, a corporation is prohibited by 18 O.S. §1006(A)(1)( c ) from incorporating under the “names of limited liability companies, whether domestic or foreign, then existing or which existed at any time during the preceding three (3) years.” 
17. 18 O.S. §2009.
18. 18 O.S. §2008.
19. Jane later reserved the name of the former LLC herself. Although this step was not necessary to prevent resurrection of the former LLC, it did prevent John and Mary from registering a new LLC under the former name, and then attempting (albeit unsuccessfully) to reopen the dismissed case. However, the divorce court later allowed both the LLC and Mary to intervene in the divorce in order to “dissolve” the LLC, an action this author believes to be in direct violation of the LLC Act and the Midpoint Development decision. The dispute is still pending.
20. 18 O.S. §2004 (B).
21. 18 O.S. §2004 (B) (emphasis added).
22. 18 O.S. §2012.1 (A).
23. 18 O.S. §2012.1 (B).
24. In re Midpoint Development L.L.C., 466 F.3d 1201 (10th Cir. 2006).
25. 466 F.3d 1201 (10th Cir. 2006).
26. Id. at 1205.
27. It is outside the scope of this article whether a new LLC, otherwise identical to the LLC that was canceled by operation of law, will be allowed by the IRS to use the defunct LLC’s tax identification number.
28. 466 F.3d 1201 (10th Cir. 2006).
29. 18 O.S. §2039 (A)(2)(a).
30. 18 O.S. §2055.2 (G).

About The Author

Libby Mercer is a private practice attorney in Oklahoma City. Her 20 years of experience encompass both state and federal judicial clerkships and private civil litigation. Currently, her practice emphasizes representing consumers in cases involving auto fraud, warranty law, debt collection abuses, predatory lending practices and other consumer‑related issues. Mercer also works as a research and briefing consultant and provides litigation support. She may be reached at (405) 525‑8858 or by e‑mail at consumerlaw@swbell.net.

Avoiding the Premature Death of an LLC
Published OBJ 79 45 (January 12, 2008)