Key Takeaways

  • A resolution to dissolve an LLC or corporation is a formal legal step that must be documented and approved by stakeholders.
  • LLCs often require unanimous member consent unless the operating agreement states otherwise.
  • The dissolution process involves filing Articles of Dissolution with the state, notifying creditors, and winding up financial obligations.
  • Failure to complete formal dissolution can result in continued tax and compliance liabilities.
  • Legal and tax professionals should be consulted to ensure compliance at both state and federal levels.

A board of directors resolution to dissolve corporation business may be done for a variety of reasons, such as retirement, a change in career direction, the company no longer serving its purpose for the owners, or bankruptcy.

Overview of Voluntary Dissolution

When a corporation is no longer doing business, the dissolution of the business must follow the legal steps that the state requires. Since it is an entity created under state authority, only the state can terminate the business.

Each state has its own laws regarding the legal dissolution of an entity. Note that dissolving a corporation requires formal action. It cannot be dissolved with a phone call or letter.

A corporation must attain a Certificate of Dissolution from the office of the Secretary of State where the business was registered. If not, the corporation is responsible for taxes, assessments, penalties, and interest. The certificate requires the corporation name; the date the dissolution was authorized; a statement noting the authorization of the corporation by the stockholders and board of directors; the name and address information of the officers and directors; and the original filing of the corporation's Certificate of Incorporation with the Secretary of State.

When dissolving a corporation, it is recommended that professional accountants, tax experts, and lawyers be involved in the process. This helps ensure all obligations to employees, directors and officers, creditors, and taxing authorities are taken care of.

Dissolution of a corporation is complicated. The entity is not considered dissolved until the following steps are completed:

  • Formal action to dissolve the business takes place.
  • State offices are duly notified by filing the intent to dissolve the business.
  • Creditors must receive a statutory notice.
  • All creditor claims must be processed.
  • All remaining assets must be sold and distributed.

There are also actions that must be taken at the state and federal levels before a dissolution takes place. These are steps that an accountant typically handles.

Resolution to Dissolve an LLC

Before an LLC can be dissolved, a formal resolution to dissolve must typically be adopted. This resolution serves as the official record that members have agreed to wind down the business.

Most LLCs require unanimous consent from all members unless the operating agreement specifies otherwise. In some states, a simple majority or a specific percentage of ownership interests may suffice. The resolution should include:

  • The name of the LLC.
  • The date and place of the meeting (if applicable).
  • A statement affirming the members’ decision to dissolve the LLC.
  • Authorization for one or more members to file the Articles of Dissolution and handle final business matters.

Once passed, this resolution should be documented and stored with the LLC’s records. It is also common to include this resolution as an attachment when submitting dissolution paperwork to the state.

Federal

  • Final federal tax deposits must be made.
  • Capital gains and losses must be reported.
  • Shares held by partners/shareholders must also be reported.
  • A federal tax return must be filed with the Internal Revenue Service for the year the corporation goes out of business. The return must be marked "FINAL."

State

  • If required, a final state tax return must be filed.
  • Final state tax deposits must be made.
  • A final sales tax return must be filed, if applicable.
  • Final employment tax returns must be filed for employees, if applicable.
  • A final annual or quarterly employment tax form must be filed.

Employees

Along with employment tax returns and quarterly or annual employment tax forms being filed, there are several other required steps.

  • Employees must be issued wage and withholding information.
  • Information for W2s issued must be reported.
  • A return filed for tip income and allocated tips.
  • Final employee pension and benefit information must be filed.
  • Sub-contractors must receive payment information.
  • 1099 information must be reported.

Process for Dissolving a Corporation

When the dissolution of a corporation is on the itinerary, the first thing that is generally done is holding a meeting of the board of directors. At the meeting, the members propose a resolution to close the business. This is called a termination proposal.

All stockholders who are entitled to vote must receive 10 days prior notice. A majority of the outstanding stock must approve the dissolution followed by a majority of the shareholders.

Under the General Corporation Law, a formal stockholder meeting does not have to take place for stockholders entitled to vote on the dissolution if each one provides their written consent.

Dissolution of a corporation based on written consent can be a more efficient process for smaller businesses. This may be because most or all stockholders who are voting are directors and either a unanimous or a majority agreement is in place.

The laws for dissolution vary by state. In some states, a minimum two-thirds of all voting shares must be in agreement to approve a corporate dissolution.

In many states, the corporation must file a statement of intent to dissolve before steps can be taken to initiate the closing of the business.

LLC Dissolution Without Unanimous Consent

In some situations, an LLC may dissolve even if not all members consent, provided the operating agreement or state law permits it. For instance:

  • Some states allow dissolution by a majority vote or a judicial decree if the members are deadlocked.
  • If an operating agreement explicitly allows for dissolution under certain conditions (e.g., failure to meet performance milestones), then full consent may not be necessary.

However, to avoid legal disputes, it’s strongly recommended that LLC members document the basis and process for such a dissolution in writing.

LLC Winding Up and Termination

Once the resolution to dissolve the LLC is approved and filed, the business enters the winding-up phase, where it must:

  • Cease new business activities.
  • Notify creditors and settle outstanding debts.
  • Collect accounts receivable.
  • Liquidate and distribute remaining assets according to the LLC agreement.

Winding up also involves canceling licenses, closing bank accounts, and submitting final tax filings. Only after these steps are completed can the LLC be formally terminated with the state.

Filing Articles of Dissolution

After adopting a resolution to dissolve an LLC or corporation, the next step is to file Articles of Dissolution (sometimes called a Certificate of Dissolution) with the appropriate state agency—typically the Secretary of State.

Articles of Dissolution usually require the following details:

  • Entity name and formation date.
  • Effective date of dissolution.
  • A statement of member or shareholder approval.
  • Confirmation that all taxes and debts have been resolved or will be addressed during the winding-up phase.

Failure to file dissolution paperwork may result in continued annual reporting and tax obligations—even if the business has ceased operations.

Frequently Asked Questions

  1. What is a resolution to dissolve an LLC?
    It is a formal written statement approved by the LLC members that authorizes the legal dissolution of the business.
  2. Do all members need to agree to dissolve an LLC?
    Generally, yes—but this can vary based on the LLC’s operating agreement and state law.
  3. What is the difference between dissolution and termination of an LLC?
    Dissolution initiates the process of closing the business, while termination marks the formal end after all debts and obligations are resolved.
  4. Is filing Articles of Dissolution required?
    Yes, in most states, filing Articles of Dissolution with the Secretary of State is mandatory to finalize the closure.
  5. What happens if I don’t file a resolution or dissolve my LLC formally?
    The LLC remains active in the eyes of the state, potentially incurring taxes, penalties, and annual fees.

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