Closing a Business: Basics of Corporate Dissolution
Many small businesses are grappling with the tough decision of whether to shut down or try to weather the economic storm. For those that must close their doors, there still remains the often laborious task of shutting down the business. What they must do depends on the type of legal entity utilized by the business, along with where they are. In the case of businesses that incorporated, shutting down involves dissolving the corporation. Here are some basics about how a corporation dissolves.
In order to dissolve a corporation, the corporation's owners must agree to dissolve the entity by following either the procedures set out in the organizational documents for the corporation (such as its articles of incorporation or bylaws), or the rules set out in the state's business statutes. Usually, these rules require at least a majority of the owners to agree on dissolution, but they could require a two-third's or even unanimous vote.
The corporation must then be officially dissolved with state and local government offices. Thus should be taken care of quickly because afterward, the coporation will not be liable for business taxes or filings in the state going forward, and creditors are put on notice that the corporation can no longer incur business debts. Dissolution forms are filed with the state corporations unit, usually a division of the Secretary of State. Each state's specific requirements and procedures for dissolving a corporate entity must be followed.
Other things to think about when dissolving a corporation include canceling permits, licenses, and fictitious business names, and paying off any taxes and debts. Creditors, employees and customers should also be notified of the dissolution.
- Closing a Business (IRS)
- 5 signs it's time to close your business (Microsoft Small Business)
- A Chronology: A Road Map to Closing Down Your Business (FindLaw)
- Ten Things to Think About: Being Sued After You Close Your Business (FindLaw)
- Business Organizations (provided by Patricia G. Micek, Attorney at Law)
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