Key Takeaways

  • Dissolving a business in Washington State requires a series of legal steps, including filing Articles of Dissolution and notifying creditors.
  • The reasons for dissolution can range from voluntary decisions to court orders or administrative actions by the state.
  • Failing to properly dissolve a business can lead to ongoing tax liabilities, legal penalties, and personal liability for business owners.
  • It's important to understand the specific requirements and procedures for both corporations and LLCs in Washington State.
  • UpCounsel can connect you with qualified attorneys who can assist with the dissolution process and ensure compliance with all legal obligations.

Articles of dissolution in Washington state are required when a corporation operating in the state is going through the process of being dissolved. This document outlines the plan for corporation dissolution.

What Is Washington Corporation Dissolution?

A corporation is created in Washington when the secretary of state receives and approves the company's articles of incorporation. After a corporation is approved, it will be added to the list of officially registered corporations, which is kept by the secretary of state. Upon completion of the registration process, the corporation is immediately obligated to follow all tax and reporting requirements. Failure to comply with these regulations and deadlines could result in hefty fines.

After registering a corporation in Washington, you must inform the secretary of state if you decide to close the business and cease all business activities. After the secretary of state has confirmed that your business has met all of the obligations that apply to corporations in the state, the next phase of dissolution will begin. After approving the dissolution, the corporation's status will be updated to dissolved.

The process of dissolving a corporation in the state is referred to as Washington corporate dissolution. Before it can be dissolved, a corporation must request a tax clearance certificate, which will come from the state's Department of Revenue. This certificate must be included with the articles of dissolution when submitting the document to the secretary of state to begin dissolving the corporation.

Reasons for Dissolution

Before proceeding with the dissolution of a corporation or LLC in Washington State, it's essential to understand the various reasons why a business might decide to dissolve. Common reasons include:

  • Voluntary Dissolution: This occurs when the business owners decide to close the business, often due to retirement, relocation, or simply a desire to move on to other ventures.
  • Involuntary Dissolution: This may occur if the business fails to comply with state laws, such as failing to file annual reports or pay taxes, leading the state to dissolve the corporation.
  • Administrative Dissolution: This happens when the state administratively dissolves a business due to failure to meet regulatory requirements.
  • Judicial Dissolution: In some cases, a court may order the dissolution of a corporation if there is a deadlock among the directors, illegal activities, or fraud.

Understanding these reasons helps clarify whether dissolution is the right step and ensures that the appropriate processes are followed.

Dissolution Activities

A corporation that has been dissolved maintains its existence but is not allowed to conduct any business aside from what is necessary to liquidate the affairs and wind up the closure of the company. Examples of acceptable business activities for a dissolved corporation include:

  • Collecting assets
  • Distributing remaining property among shareholders, based on their ownership interest
  • Disposing of property that is not being distributed
  • Making provisions to or discharging liabilities
  • Participating in other actions needed to liquidate the affairs of the corporation

However, dissolving a corporation does not result in any of the following actions:

  • Transferring of the title to the property of the corporation
  • Subjecting the officers of directors to unique conduct aside from what is outlined in chapter 238.08 RCW
  • Preventing the transfer of securities or shares, even if the dissolution authorization allows for the closing of share transfer records
  • Suspending or abating any pending proceeding against or by the corporation that was started prior to the effective date of its dissolution
  • Altering the voting or quorum requirements for its shareholders or board of directors
  • Changing the provisions in place for removal, resignation, or selection of officers and/or directors
  • Altering the provisions to amend the corporation's bylaws
  • Terminating the registered agent's authority
  • Preventing the corporation from any legal proceedings

Steps to Voluntary Dissolution

Voluntarily dissolving a business in Washington State involves a series of steps to ensure that all legal and financial obligations are met. These steps include:

  1. Approval of Dissolution: The decision to dissolve must be approved by the board of directors and shareholders (for corporations) or members (for LLCs).
  2. Filing Articles of Dissolution: After securing approval, the business must file Articles of Dissolution with the Washington Secretary of State. This filing officially begins the dissolution process.
  3. Notifying Creditors: The business must notify all creditors and claimants, providing them with a deadline to submit claims against the business.
  4. Settling Debts and Obligations: All outstanding debts, taxes, and obligations must be settled before the dissolution is finalized.
  5. Distribution of Remaining Assets: After settling debts, any remaining assets should be distributed among shareholders or members according to the business’s governing documents.
  6. Final Tax Returns: The business must file its final tax returns with the IRS and the Washington Department of Revenue.

By following these steps, businesses can ensure a smooth and legally compliant dissolution process.

Notifying Claimants in Writing

A corporation that has been dissolved will typically notify all known claimants in writing following the effective date of its dissolution. This notice must include:

  • A description of the information that any claimant must include in their claim
  • The deadline by which the claim must be received (cannot be fewer than 120 days from the effective date of this written notice)
  • A statement about the barring of any claims not received by the deadline
  • The mailing address to send the claims

If any of the following apply, the claim made against the corporation that has been dissolved will be barred:

  • The claimant doesn't deliver their claim by the provided deadline
  • A rejected claim does not proceed for enforcement within 90 days of the rejection notice's effective date
  • The claim doesn't have a contingent liability
  • The claim is based on an event that occurred after the dissolution date of the corporation

Consequences of Not Dissolving Properly

Failing to properly dissolve a business in Washington State can result in several negative consequences, including:

  • Ongoing Tax Liabilities: The business may continue to incur state and federal tax liabilities, leading to penalties and interest on unpaid taxes.
  • Legal Penalties: The business could face fines and legal actions from the state for failing to comply with dissolution procedures.
  • Credit Damage: Unsettled debts and claims could negatively impact the credit of the business and its owners.
  • Personal Liability: In some cases, owners might be held personally liable for the business’s debts if proper dissolution procedures are not followed.

To avoid these consequences, it is crucial to adhere to all legal requirements when dissolving a business.

Distribution of Assets

The assets held by a corporation that has been dissolved must be transferred to shareholders, claimants, and/or creditors. If these individuals or companies can't be found or aren't competent to receive them, the assets can be sold for cash, which must then be deposited with the treasurer of the state of Washington to keep until the claimant, shareholder, or creditor can take it.

After transferring the assets to the state treasurer, the claimant, shareholder, or creditor must show proper proof that they are entitled to receive the cash provided. When this proof is provided, the treasurer or another state official will distribute payment.

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