This blog includes the process of filing all the necessary paperwork to dissolve a corporation. A corporation is a legal entity created by state governments. It differs from its owners or shareholders in that the corporation is a separate legal person and has limited liability. However, the corporation, depending on its size and longevity, may eventually be dissolved for various reasons.
There are several ways by which a corporation can dissolve. This guide will demonstrate the steps involved with dissolving a corporation.
Once you’ve decided to shut down your corporation, you’ll need to formally dissolve your corporation by quitting it. If you don’t, it can continue to exist as a legal entity even if you no longer conduct any business through it and even if you are no longer a member of the corporation. That means you remain liable for the corporation’s debts and that the corporation remains legally obligated to file financial reports.
One of the last things you should do before shutting down a business is to ensure that you’ve complied with legal obligations concerning taxes or other kinds of filings. States tend to differ in business regulations. Get some help from an attorney to find out what you need to legally do, and where you need to file paperwork to make sure your business is compliant.
STEPS INVOLVE INCORPORATION DISSOLVING
After the Certificate of Dissolution has been filed, it can take up to a few days to register the corporation in your state. Completing each of the steps involved in the decision to close a business may take several months.
- Call a meeting with the board of directors
- File documentation of dissolution
- Inform the IRS
- Close accounts
- Residual assets sharing
CALL A MEETING WITH THE BOARD OF DIRECTORS
Before dissolving a corporation, it is advisable to schedule a meeting with the board of directors. Every state has its laws, more than a few states require an official vote from the board of directors to dissolve the corporation. Even if you don’t have to do this, going through the process makes it less likely that you will have legal problems in the future. In most corporate boards, a decision of this magnitude requires unanimous consent from the board of directors.
VOTES OF SHAREHOLDERS
The Board of Directors may vote to dissolve your corporation, but you still need approval from the shareholders. In some states, a majority of shareholders can decide to change corporate law by a two-thirds vote.
A majority of shareholders must agree that the company should be dissolved, that it’s time to stop running it, and formally approve of it. A corporation may only dissolve if all the owners complete a written agreement seeking dissolution and file that agreement with the Secretary of State.
FILE DOCUMENTATION OF DISSOLUTION
To file paperwork with the government to dissolve your company, you must contact the government agency in the state in which your company is incorporated. Most states have a state agency that regulates the process of incorporation. The name of the government agency that regulates corporations is called the “Corporation Commission” or the “Corporation Agency.” You can probably find your state’s business incorporation bureau listed online.
Some states may refer to the certificate of dissolution as something else, such as the articles of dissolution. Be sure to double-check that you meet the state’s requirements and find out whether any fees are due when you submit the form.
Check with your state’s laws for any legal requirements regarding notice to creditors and filing for dissolution. This is why it’s so influential for you to speak with an attorney before you pursue this kind of action.
INFORM THE IRS (Internal Revenue Service)
Once you have filed for dissolution of your company with the state agency, you should next notify the IRS to tell them what you are doing.
To dissolve the corporation, you will need to file an income tax return and pay any taxes due, as well as file a certificate of dissolution with the state. Generally, the Secretary of State requires these forms to dissolve a corporation. When it does, mark the box “Final Return” on your state and local tax return documents.
The IRS publishes a list of additional state and local requirements for those required to file returns. When you have employees, you’ll have to provide detailed reports on their payroll information.
Next, you need to close all accounts that are specific to your business that you have open. You should check to see if your company is holding any accounts with annual fees before the end of the business and cancel those you aren’t using. If not, you are required to pay taxes at the end of every year. If you want to terminate your company’s registration in more than one state, you can fill out the standard form with the additional states listed. Otherwise, the company might be required to pay additional taxes. You will also need to terminate any fictitious business names and your DBA.
You will need to tell all of the creditors that you are dissolving the corporation. Send a letter and include your mailing address so that they can send claims. Make them aware of the deadline for submission—usually 120 days after you notify them.
You should review the attached claims very carefully to make sure you know exactly what is being asked of you. An attorney can support you make sure that others don’t harm you.
You might have future entrepreneurial aspirations, which means taking care of your current corporation’s dissolution.
RESIDUAL ASSETS SHARING
When a company is dissolved, it’s important to settle all debts and distribute the remaining assets to owners. If there are multiple owners, it is possible to divide assets up in a way that each owner owns the same percentage of them. If the business is split into four equal parts, each owner will own 25% of the assets. It’s usually more favorable to distribute assets once they’re not needed anymore.
For example, a vehicle or piece of machinery can be passed on more easily when it has already been liquidated. It is important to report all financial transactions, including distributions, to the Internal Revenue Service.
It’s important to learn how to dissolve a corporation correctly when shutting down a business. Properly dissolving your business can save everyone involved from trouble with the IRS and other agencies. If you want to continue business in the future, it’s important to file a corporation “dissolution” form with the state.