Many small businesses find themselves grappling with the tough decision of whether to shut down or try to weather through an economic storm.
For businesses that must close their doors, there still remains the large task of shutting down. What they must do depends on the type of legal entity used by the business, along with where they are located. In the case of businesses that are incorporated, shutting down also involves the dissolution of a corporation. Here are some basics about how a corporation dissolves.
Where to Start
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 corporate 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 voluntary dissolution, but they could require a two-thirds or even unanimous vote by the owners or the board of directors.
You should then make a plan for your dissolution process. You will need to figure out what remaining assets the business has including bank accounts and inventory if applicable and liquidate items to raise cash or pay any creditor claims. You will also need to talk to your attorney and accountant to make sure you are prepared to file the necessary tax forms and final tax returns and pay any tax obligations as needed.
The corporation must then be officially dissolved with state and local government offices by filing articles of dissolution. This should be taken care of quickly because afterward, the corporation 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 in order to wind up the process.
Things to Think About
Other things to think about when dissolving a corporation include canceling permits, business licenses, and fictitious business names, and paying off any taxes and debts. Creditors, employees and customers should also be notified of the dissolution.
If you have any questions regarding your state laws or other legal requirements to dissolve your corporation you should speak to a local attorney familiar with business closures.
Related Resources:
- Dissolution and Winding Up Checklist (FindLaw’s Learn About the Law)
- Closing Down Your Business: a Chronology (FindLaw’s Learn About the Law)
