Dissolving a corporation is a formal legal process that involves several important steps to ensure that the corporation is properly closed, its obligations are settled, and it is removed from official records. Whether the dissolution is voluntary (by the decision of the corporation’s owners or shareholders) or involuntary (due to legal or regulatory reasons), it’s crucial to follow the correct procedures to avoid legal complications. Here’s a comprehensive guide on how to legally dissolve a corporation:
1. Review the Corporation’s Articles of Incorporation and Bylaws:
- Check for Provisions on Dissolution: Before starting the dissolution process, review the corporation’s governing documents, such as its articles of incorporation and bylaws. These documents may contain specific provisions on how to dissolve the corporation, including the process for shareholder approval and the distribution of assets.
- Understand the Requirements: The corporation’s governing documents may require a vote of the shareholders or board of directors to approve the dissolution.
2. Hold a Board of Directors Meeting:
- Board Approval: The first step in the dissolution process is typically to hold a meeting with the board of directors. The board must approve the decision to dissolve the corporation. The approval should be formally documented in the meeting minutes.
- Voting on Dissolution: Depending on the corporation’s governing documents and local laws, the board may need to hold a vote on the resolution to dissolve the company. In most cases, a majority vote is sufficient, but some corporations may require unanimous approval.
3. Obtain Shareholder Approval:
- Shareholder Vote: If the corporation is shareholder-owned, the shareholders must vote to approve the dissolution after the board of directors approves it. The required vote threshold for approval may vary by jurisdiction and the corporation’s bylaws, but it is often a majority vote.
- Notify Shareholders: Shareholders must be notified of the meeting and vote in advance. The notice typically includes the reason for dissolution and any relevant details about the process.
4. File Articles of Dissolution with the State:
- Official Filing: Once the board of directors and shareholders approve the dissolution, the next step is to file the official articles of dissolution (or a certificate of dissolution) with the Secretary of State or the relevant state agency. This document officially notifies the state that the corporation intends to cease operations.
- State-Specific Forms: Each state has its own process and forms for dissolution, which can typically be found on the website of the state’s Secretary of State or business registration office. Some states may require additional forms or information, such as the corporation’s tax identification number or a statement of intent to dissolve.
- Filing Fees: Be prepared to pay any required filing fees when submitting the dissolution documents.
5. Settle Debts and Liabilities:
- Pay Outstanding Debts: Before dissolution, the corporation must settle any outstanding debts or liabilities. This includes paying creditors, employees, and any other obligations. If the corporation has assets, they may need to be liquidated to pay off these debts.
- Notify Creditors: Notify all creditors of the corporation’s intent to dissolve. This allows creditors to submit any claims for payment before the dissolution process is finalized.
- Tax Liabilities: Ensure that all taxes, including corporate income tax, sales tax, and employee withholdings, are paid and up to date. You may need to file final tax returns with the IRS and your state’s tax authority.
6. Distribute Remaining Assets:
- Asset Distribution: Once debts and liabilities are settled, any remaining assets can be distributed to shareholders based on their ownership percentage. If the corporation is liquidating, the assets may be sold, and the proceeds divided among the shareholders.
- Final Dividend: In some cases, a final dividend may be issued to the shareholders before the corporation is dissolved. This should be done in accordance with the corporation’s bylaws and applicable laws.
7. Cancel Business Licenses and Permits:
- Notify Local Authorities: If the corporation holds any business licenses, permits, or registrations with local authorities, those should be canceled or transferred, if necessary. This includes anything from sales tax permits to professional licenses, depending on the nature of the business.
- Cease Operations: Officially cease all business operations, including closing business accounts, selling or transferring any assets, and notifying clients, customers, and suppliers of the dissolution.
8. Close Corporate Bank Accounts:
- Bank Account Closure: After distributing assets and settling liabilities, close the corporation’s bank accounts. This ensures that the corporation’s financial operations are fully terminated.
- Clear Out Accounts: Make sure all outstanding checks are cleared, and any remaining funds are distributed in accordance with the dissolution process.
9. File Final Tax Returns:
- Final Tax Filings: The corporation must file final tax returns with the IRS and state tax authorities, marking the end of its operations. This includes submitting any outstanding income tax returns, employment tax filings, and sales tax returns.
- IRS Notification: The IRS requires businesses to notify them that the corporation is dissolved. This can be done by checking the box on the final corporate tax return, indicating that it is a “final return.”
10. Retain Corporate Records:
- Document Retention: Even after the corporation is dissolved, certain records must be kept for a period of time. These records may include financial statements, tax returns, and other important business documents. Retain these records in accordance with the law, typically for at least several years, in case of future inquiries or audits.
