Revival of Corporation’s Charter after Filing Suit Not Sufficient to Save It

Author: Donna M. McMillan Date: 05/28/2010

Categories: Corporate and Business Law

Earlier this Spring, the Maryland Court of Special Appeals ruled that a Maryland corporation whose charter has been revoked by the Maryland State Department of Assessments and Taxation (“SDAT”) is deemed a defunct entity and cannot file or maintain an action in the Maryland courts. In the case of Tri-County Unlimited, Inc. v. Kids First Swimming School, Inc. the Court held that the revival of the corporation’s charter following the filing of the suit did not retroactively restore the corporation to good standing as of the date of filing. As a result, the corporation’s suit was dismissed.

The parties in the case had stipulated that the plaintiff corporation’s charter had been revoked as of the date the suit was filed but the charter had been reinstated prior to the date of the hearing. The plaintiff corporation argued that the revival of its charter applied retroactively thereby making its complaint valid when filed. This framed the issue for the Court’s decision.

The Court pointed to Section 3-503(d) of Corporations and Associations Article which states that, after the SDAT has revoked the charter of a corporation, the powers conferred upon a corporation by law are “inoperative, null and void”. The Court also looked to Section 3-512 of that same Article which states that once the corporation’s charter is restored, all of its rights and assets are restored unless they were otherwise divested during the period of forfeiture. The restoration of a corporation’s charter restores the corporation’s rights as if they had never been lost. However, such a restoration cannot rectify the fact that a suit filed by a defunct entity is a nullity. Efforts by the plaintiff to differentiate the law as it applied in the plaintiff’s circumstances from those in prior Maryland decisions were ineffective.

In this particular case, the Court’s decision did not foreclose further action by the plaintiff. The statute of limitation had not yet run on the plaintiff’s cause of action and the court made its decision without prejudice to the Plaintiff’s right to re-file its suit. A similar decision in an earlier case had a much more devastating effect. At the time the plaintiff in that case had filed its suit, its corporate charter had been revoked. This fact came to light when the plaintiff tried to amend its complaint. By this time, however, the statute of limitations had run on the plaintiff’s cause of action. The Court ruled that the amended complaint could not relate back to a nullity and, as the statute of limitations had run on the plaintiff’s claim, the plaintiff could not re-file its case.

McMillan Metro, PC takes initiative when dealing with its corporate, limited liability company and limited partnership clients to make them aware of whether or not they are in good standing with the Maryland SDAT. Maintaining an entity in good standing in Maryland requires only the annual filing of a personal property tax return $300 fee and the payment of any taxes required in connection with that filing. It is not a difficult process but, as one can see, it can be an important one. If you have any doubts as to whether or not your Maryland entity is in good standing, please contact us and ask. We can make this determination for you and, if your entity is not in good standing, assist you in restoring it.