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A defunct company is a company that is no longer active or operating. The local or state government typically applies the status of a defunct company, and it is a legally binding title. A defunct company can earn this status in a variety of ways. One of the primary ways it occurs is by not filing the legal documents and paperwork the company is required to file with its state. For example, if the company is a corporation, then the Secretary of State requires that the company file an annual report. When the company does not file an annual report and pay the fee the state requires for the filing, the company goes in to an inactive status. Eventually, according to a timeframe set by the state, the inactive status 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 by its owners. The owners may decide that the company is no longer turning an acceptable profit. While it is by choice rather than force, when the owners choose to close the doors of the business, this is also a defunct business — a business that is no longer in operation.
When a company files for bankruptcy, this is another avenue that typically leads to a defunct company. If the company files for bankruptcy, but then continues to run the business and sell its products and services, then the company is not defunct. It is when the company files for bankruptcy and closes its doors for good that it is defined as a defunct company.
Another way that a company can be termed defunct is if a government agency closes the company down. For example, if a financial services business breaks one of the laws of the Securities and Exchange Commission (SEC), the government can come in and force the company to close its doors. Typically, this is after repeat offenses, where the business has been warned of its wrong doings, fined and given the opportunity to right its wrongs.
If a company continues to operate illegally, then it can become a defunct company when the local county, state or federal government comes in and closes the business down. In the end, a company can become defunct by choice or by force from a third party.