Corporate dissolution can be a touchy topic since dissolution is associated with a business going under, but there are lots of reasons for a business to shut down. For example, you wouldn’t want to keep paying fees and renewals for an LLC that was founded with a specific purpose, like building a housing tract, after that purpose is fulfilled. Nor would you expect an entrepreneur to balk at a particularly lucrative opportunity that would divert too much attention away from their original business. Whatever the reason, there may come a day when your corporation or limited liability company has to file their Articles of Dissolution and close down for good. If that day does come, you may find yourself wondering what else you have to do to finalize the dissolution. To help prepare our readers for any possible future, we decided to use a Business Basics post to outline what, exactly, has to be done during dissolution.
Vote on Dissolution
Most states require that the managing members (in the case of an LLC), or the board of directors (in the case of a corporation) votes, and agrees, on dissolution. If the corporation is publicly traded, the shareholders will also have to vote and agree on dissolution. If you cannot secure that vote, you will probably not be able to dissolve the business. Now, lawsuits can be filed to force dissolution, but these suits are rarely in the best interest of the directors, executives, or managing members. So when you start the dissolution process, make sure you can secure enough votes to get past this first hurdle.
File Your Articles of Dissolution
State requirements on what the articles of dissolution have to include vary, but for the most part the information is fairly standard. The corporation or LLC will have to provide its name, the date the dissolution will take effect, the reason for dissolution, and information on any legal actions pending, if any are. If your business is registered to do business in any other state, it must also file an ‘application of withdrawal’ or ‘certificate of termination’ with those states. Otherwise it could be held liable for future annual reports and state fees, even though the business no longer exists.
Send Cancellations and Notices
In addition to holding a shareholder vote, public corporations are required by most states to formally announce their intent to dissolve in a dissolution proposal. This proposal will usually name the corporation and have to have a statement confirming that the proposal was adopted by a majority vote. This proposal will also be made part of the public record.
All corporations must also file form 966 with the IRS within 30 days of filing their articles of dissolution. Some states will require corporations operating within their borders to have a tax clearance certificate before the dissolution is completed, so make sure you are square with the IRS!
When you dissolve you have to pay back the business’s creditors. If anything remains, you distribute the business’s assets to the owners based on the percentage of the company they own. In other words, corporations pay their shareholders based on how many shares they own, and the shareholders return their outstanding shares. In LLCs, assets are distributed according to how much each member/manager originally contributed.
If you have any questions about corporate or limited liability company dissolution, feel free to leave them in the comments below, or give us a call at 1(877) 692-6772 – we’re happy to answer any questions you might have, and can even help you file your articles of dissolution.