A defunct company is one that is no longer active or operational, enforced by local or state government. This can occur through failure to file legal documents, bankruptcy, closure by owners, or government agency intervention.
A defunct company is a company that is no longer active or operational. Local or state government typically enforces the status of a defunct corporation, and it’s a legally binding title. A defunct company can achieve this status in a number of ways. One of the main ways it occurs is by not filing the legal documents and paperwork that the company is required to file with its state. For example, if the company is a corporation, the Secretary of State requires that the company file an annual report. When the company fails to file an annual report and pay the state-required tax for filing, the company goes into an inactive state. Eventually, according to a time frame set by the state, the inactive state turns into a defunct company, which is a company that is no longer able to operate in the state.
A company can also be closed down by its owners. Owners may decide that the company is no longer turning an acceptable profit. While it is by choice rather than force, when owners choose to close the doors of the business, this too is a defunct business, one that is no longer operating.
When a company files for bankruptcy, this is another avenue that typically leads to a defunct company. If the company files for bankruptcy, but continues to operate the business and sell its products and services, the company is not dead. It is when the company files for bankruptcy and permanently closes its doors that it is referred to as a defunct company.
Another way a company can be called defunct is if a government agency shuts it down. For example, if a financial services firm breaks one of the Securities and Exchange Commission (SEC) laws, the government can step in and force the company out of business. Typically, this occurs after repeated offences, where the company has been warned of its wrong doings, fined, and given the opportunity to correct its mistakes.
If a company continues to operate illegally, it may become a defunct company when the local county, state or federal government steps in and goes out of business. Eventually, a company may become defunct by choice or by force of a third party.
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