Legal Question -- Corporate Entity Status

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Legal Question -- Corporate Entity Status

Postby tifosi77 on Tue Apr 23, 2013 8:25 pm

Okay, so we're between lawyers at my company right now and we have an interesting problem that's cropped up. Was wondering if any of the lawyers here could explain something to me.

Several years ago we entered into an option with an entity for animation rights for one of our IPs. This option was purchased in 2007..... and is perpetual. I cannot for the life of me figure out who authorized a perpetual rights grant to a no-load entertainment company, but that's neither here nor there. Some months back a third part inquired about the availability of those rights, and in researching this I learned that the entity that we did the deal with in 2007 is listed on the CA Secretary of State website as a "Suspended" status. This means "The business entity's powers, rights and privileges were suspended or forfeited in California 1) by the Franchise Tax Board for failure to file a return and/or failure to pay taxes, penalties, or interest; and/or 2) by the Secretary of State for failure to file the required Statement of Information and, if applicable, the required Statement by Common Interest Development Association." Which means "The business cannot initiate lawsuits, defend itself against lawsuits, or enforce its legal contracts." (Both quotes are direct from the CA SOS website)

They can file to reinstate their entity by remedying the applicable cause(s) for suspension.

My question -- what is the legal status of that perpetual rights grant? Did those rights go into limbo? Was the contract nullified by the suspension? It'd be really cool if the agreement was killed.

Thanks in advance.
(And I understand that any comments are for informational purposes only and do not constitute legal advice, no need to disclaim.)
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Re: Legal Question -- Corporate Entity Status

Postby Shyster on Tue Apr 23, 2013 8:44 pm

Is it a California company, or just one that was at one time registered to do business in CA? That might make a difference.
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Re: Legal Question -- Corporate Entity Status

Postby Pitt87 on Tue Apr 23, 2013 9:20 pm

The final action of a defunct company would do is distribute assets to creditors and shareholders, or collateralize unsecured debt with assets, including contracts and IP, so I'd be shocked if you did some research and found that no one picked up this company's assets. Just because they didn't properly notify you doesn't mean your clear. It actually gets harder from there, since you have to request records from a company that doesn't exist and follow the trail...

This is what you would pay a lawyer for... it will cost you less to be certain.
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Re: Legal Question -- Corporate Entity Status

Postby tifosi77 on Tue Apr 23, 2013 9:48 pm

Yes, it's a CA corporation. The only asset I am directly aware of at the time being is their company URL, which is still active and carries a 2013 (c) mark. (Altho the last update to the content of the site was the 2007 press release announcing the acquisition of these rights)

The reason I am curious is we just got word from the guy who was the principal of the company that they are gearing up for a Kickstarter campaign to raise funds to underwrite their development of an animated film based on our IP. And I will swallow my own head before I allow one of our IPs to be developed by a podunk using a freaking Kickstarter campaign.
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Re: Legal Question -- Corporate Entity Status

Postby ExPatriatePen on Wed Apr 24, 2013 9:37 am

I'm certainly NOT an attorney, but wouldn't any funds raised under this organi action first have to be applied to the outstanding tax issue?

I'm sure the tax collector would be interested in knowing that this individual has raised funds. I know f it were the IRS they'd confiscate that bank account before he could order a double latte.
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Re: Legal Question -- Corporate Entity Status

Postby tifosi77 on Wed Apr 24, 2013 10:05 am

Well, it's a possible tax issue. According to the SOS website, a corporation can be suspended for two reasons: failure to pay taxes to the Franchise Tax Board, or failure to file requisite "Statement of Information and, if applicable, the required Statement by Common Interest Development Association". But I would think you are right, ExPat, if it was a tax issue any revenue generated by the Kickstarter would first have to pay down that liability if it exists.

This is just really frustrating, because this is the second time in the four years that I've been at the company that I've had to untangle someone else's bad deal making with regard to optioning this IP for exploitation in other media. I would like to think that if any of the four legal staff that I've worked with (including myself) had anything to do with either of these deals in their inception we never would have allowed them to move forward.
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Re: Legal Question -- Corporate Entity Status

Postby pfim on Wed Apr 24, 2013 11:36 am

It could be taxes or the failure to file an annual report within a given time frame. Given that the status is suspended, they can't legally operate, enforce contracts or defend themselves in lawsuits. Given that you're a creditor (as the holder of an option on assets) you could sue to acquire the rights to those assets. In effect, though, the shareholders would rectify the corporate status issue and then be able to defend themselves in the lawsuit.

So just tell them to fix the lapsed corporate status...

I'm not a lawyer but deal with some of these issues sometimes. So please don't take this as proper legal advice.
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