Defunct

What Is Defunct?

Defunct, in a business context, refers to the condition of a company, whether publicly traded or private, that has gone bankrupt and has ceased to exist. Typically, "defunct" refers to something that is no longer existing, functioning, or in use. It may be used to describe laws and regulations, businesses, organizations, currencies, brands, or practices.

According to the Securities and Exchange Commission (SEC), the shares of a defunct company may continue to trade until the company has the shares deregistered or until the stock's registration has been revoked.

Understanding Defunct

Companies may become defunct for a variety of reasons. For example, bankruptcy may lead a company to shut down operations. Illegal activity or fraud may also cause a company to become defunct, as customers abandon it and its business prospects erode.

Companies may also become defunct as a result of merger or acquisition activity, in which their operations, personnel, brands, and trademarks are rolled into the acquiring company.

Defunct Companies: Trading Shares

The SEC has no rule that prohibits the trading of a company's stock once it has become defunct. It takes the position of not wanting to forbid transactions between willing buyers and sellers. As a result, shares of defunct public companies may trade even if the company isn't operating as long as there is still outstanding registered stock.

The two actions that will stop trading of any stock, defunct company or not, is when a company deregisters their stock or if the stock's registration is revoked. Once that happens, a stock is delisted from the exchange, and it may no longer trade and is worth nothing.

Examples of Defunct Companies

Some well-known companies have become defunct. They include:

Standard Oil

If there was ever a case study for what can happen to a company if it violates anti-trust regulations, it's Standard Oil. The company was founded in 1870 and was the biggest oil producer in the world. It was found to have violated the Sherman Anti-Trust Act of 1890. The company was dissolved and broken up into three companies that still exist today, ConocoPhillips, Chevron, and ExxonMobil.

The energy company went bankrupt in 2001 and is the largest bankruptcy in U.S. history. It was discovered that its financial reports were the product of massive accounting fraud.

Long-Term Capital Management

Long-Term Capital Management was a highly leveraged hedge fund that had financial luminaries on its board. It was bailed out in 1998 and then dissolved in 2000.

Tower Records

Tower Records was a music mega-store chain, which went bankrupt in 2004.

Polaroid

The instant photo camera company went bankrupt in 2001.

The Sharper Image

The gadget retailer went bankrupt in 2008.

E.F. Hutton

The brokerage firm made famous the tagline "when E.F. Hutton talks, people listen" and was acquired in 1987 after years of staggering debt, fraud, and scandals.

Special Considerations

Defunct Currencies

"Defunct" may be applied to currencies that are no longer in circulation, such as the European currencies that were retired with the adoption of the euro on Jan. 1, 1999. 

History has seen many defunct currencies (e.g. the Greek drachma and the Dutch guilder). Currencies can become defunct for many reasons. For example, due to political upheaval or revolution, or because the currency has become worthless in the foreign exchange market.