Bumps in the Road

May 7, 2009

The Journal Record - Legal Focus Section

Limited liability companies are the most popular form of business entity in Oklahoma. In 2007 and 2008, four times as many limited liability companies were formed than corporations. That is pretty impressive for a form of entity that has only been around since 1992. Because of the newness, and the fact that “the wheels of justice grind slowly” there have been the inevitable bumps in the road for this relatively new form of entity.

One of those bumps was that the initial statutory scheme provided no way for the Oklahoma Secretary of State to determine if a particular limited liability company was still being used. While owners should have filed dissolution papers, many did not. In an attempt to resolve this issue, legislation was passed in 2001 that required an annual filing with, and fee to be paid to, the Oklahoma Secretary of State. That legislation basically provided that if the filing was not made for three years, the limited liability company was cancelled. Unlike the statutes for corporations that do not pay annual franchise fees, there were no provisions to request that the limited liability company be reinstated. And, make no mistake about it, the Oklahoma Secretary of State treated a cancelled limited liability company as gone with no legal existence.

In 2008, legislation (SB 1043) was enacted to address the disparity in treatment of cancelled limited liability companies and suspended corporations. This legislation allows a cancelled limited liability company to apply for reinstatement. Most statutes are effective 90 days after being signed by the Governor, which for SB 1043 was May 21, 2008. However, subsequent legislation (SB 1708) contained a provision that amended SB 1043 and provided that the changes would not take effect until January 1, 2010. As one might guess, there have been many members of limited liability companies who have been more than surprised to find out that their limited liability company is no longer in existence for failing to file the annual certificate. And, the members typically learn about the problem at some critical point in time, such as when a banker or other party to a transaction requests a good standing certificate issued by the Oklahoma Secretary of State. Fortunately, a recent case decided in November 2008 has resolved this time gap. In Weddington v Henry, the Oklahoma Supreme Court ruled that SB 1708 was unconstitutional and void because the legislation violated the one subject rule, which generally limits legislation to one subject. A side effect of this decision is that the provisions of SB 1708 (which provided for the January 1, 2010 effective date of the reinstatement legislation) are now gone and the legislation became effective in 2008.

As a result, members of limited liability companies can rest a little better knowing that the company will simply not be forever terminated by the Oklahoma Secretary of State. However, one should not use the new reinstatement legislation as a panacea and wait to file the certificates “when required.” There are other consequences to not filing the annual certificates. One of those consequences is that the name of the limited liability company becomes available for others to use.