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Yes, a Stranger Can Cancel Your LLC!

Logo for Quora, where Dana Shultz answered a question about how a stranger can cancel your LLC or corporationThis post discusses how (amazingly!) an unauthorized stranger can cancel your LLC (limited liability company) or corporation. It is based on a Quora question that I answered. See What prevents someone from filing a restated certificate of incorporation for a Delaware corporation in which they are not authorized to do so?

Unfortunately, the ease with which entity-formation documents can be filed in the U.S. – while facilitating business startups – does allow unauthorized filing of such documents. This means that, whether accidentally or intentionally, a stranger can cancel your LLC (or corporation).

A Real-life Story

Here is what actually happened to one of my clients.

  • A small family business had formed a California LLC.
  • The Articles of Organization already had been filed with the Secretary of State.
  • I was retained to prepare an Operating Agreement, which the members approved and executed.

Several months later, I was contacted because the  LLC had been canceled without the family’s knowledge or involvement!

Here is what had happened:
  • The Articles of Organization had been filed by a friend of the family (let’s call him “Doofus”).
  • Some time after filing, Doofus received a document (I don’t know which document) from the Secretary of State.
  • Doofus became confused and canceled the LLC!
Litigation or Start Over

I called the Secretary of State to ask how this matter could be resolved. I was told that a lawsuit would need to be filed so a court could order the Secretary of State to undo the cancellation.

Litigation was an unrealistic option: My client did not have months and thousands of dollars to waste on litigation.

The more-time- and cost-effective approach was simply to form a new LLC with the same name (which was available because the old LLC had been canceled) and to apply the Operating Agreement to that new LLC.

The only good news with respect to such situations is that they must be quite rare – I am not aware of any other such occurrences.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.