Opening a business is one of the most exciting and challenging experiences of an entrepreneur’s life, but closing a business often comes with very different emotions. For many, the choice to dissolve a company happens because of new job opportunities, retirement, or other exciting new ventures and the process of corporate dissolution can feel like a significant chore that must be done before moving on. However, it is critical that you properly dissolve a company or else risk future liability long after the company is gone. A knowledgeable corporate law attorney is your best option for successfully dissolving a business once the decision is made to permanently close its doors.
Corporate dissolution is a complex and necessary process if you decide to end your business: know what steps are required to close your business and dissolve your company.
How To Do Corporate Dissolution
Corporate dissolution can come about in a number of different ways, either voluntarily or involuntarily. To voluntarily dissolve a company, the owner or shareholders can file a Notice of Dissolution with the Secretary of State or as ordered by the court after a vote. Corporate dissolution can also be ordered involuntarily through government action if the business fails to pay its taxes.
If voting to dissolve a company, make sure that the process is done according to the rules set forth in the business’ bylaws and record the decision in your corporate records. If your company does not have rules for this type of vote, then you should abide by your state’s rules for corporate voting according to the type of corporate structure you choose for your business. Once the decision is made either through a vote or court order to dissolve the company, the process of dissolution can begin.
Liquidating Company Assets
The next step after the formal vote to dissolve a business is liquidating the company’s assets. This means that the company sells any assets that are not being used as collateral for loans. Property being used as collateral must either be turned over to the institution holding the property as collateral or paid off and sold specifically to cover that debt. If the company is solvent at the time of dissolution, any remaining money from liquifying assets is given back to the owners and shareholders as profit.
It is important to note that while one step of the corporate dissolution process is the liquidating of assets, this can be different than the liquidation of a business in bankruptcy. Business liquidation in Chapter 7 bankruptcy is reserved specifically for insolvent businesses. In this process, the company is liquidated to pay assets of creditors and discharge the company’s shareholders from any personal liability stemming from the original business if they choose to start a new company that is similar or nearly identical to the first. While this is a form of corporate dissolution, a business can also be dissolved while solvent for any number of reasons that do not involve filing for bankruptcy.
Settling Any Outstanding Debts
The next step in corporate dissolution is settling any outstanding debts with creditors. This includes paying off all liabilities that were incurred prior to the closing of the business and include all goods and services paid for as well as long and short-term debts. This step in the process of corporate dissolution also includes the final payment of state and federal taxes for your business as well as payment of final payroll and income tax forms. The remaining cash is then distributed to individual owners or shareholders.
Notifying Interested Parties
In addition to paying off all known liabilities, notice must be given to any and all interested parties in the dissolution of the company. This includes creditors, shareholders, owners, customers, employees, and any other interested entities in the business. A final legal notice gives all interested parties the opportunity to bring any final claims against the business and notifies the government that taxes will no longer be paid for the business. The laws on notifying interested parties in corporate dissolution vary by state, so be sure to review your state laws with an experienced corporate law attorney to ensure that you are fulfilling the requirements of corporate dissolution in your state.
Filing Dissolution Paperwork
The last step is filing the dissolution paperwork for ending your company with the articles of dissolution. Depending on the legal structure of your business, you likely filed articles of incorporation or organization with the state. This established your business as a separate legal entity that was required to pay taxes and file regular reports with the state and federal government on its activity. The articles of dissolution are the exact opposite where they formally end the entity’s existence.
Failure to file dissolution paperwork with the state can lead to some serious liability for owners or shareholders and a complicated legal mess with state and federal regulators. The government will assume that the business is still operational and will expect payment of annual taxes as well as submission of reports. Failing to do so can lead to additional fines, fees, and penalties against you and your business. The articles of dissolution also provide another form of notice to creditors and other interested parties that the business is closed and you are no longer liable for any debts or outstanding liabilities.
How a Corporate Lawyer can Help
A corporate law attorney can be critical to the success of your business’ dissolution.
First and foremost, a local corporate law attorney understands the particular laws of your state and entity requirements when it comes to dissolving a company. A lawyer will ensure that the proper procedure is followed when deciding to dissolve the business as well as filing all of the necessary paperwork with the state. An attorney can negotiate final payments to creditors and other interested parties with claims against the business as well as ensure the proper distribution of any remaining money once all assets for the business are liquidated. Finally, a corporate attorney can help with the final filing of taxes, payroll, and other required final steps before closing your business for good.
