Company Dissolution: Everything You Need to Know
Company dissolution involves formally and officially closing it, not necessarily merging with another business or simply restructuring.3 min read
Company dissolution involves formally and officially closing it, not necessarily merging with another business or simply restructuring.
While there are many reasons as to why you may choose to engage in company dissolution, including changes in the market, marked decrease in revenue, or simply retirement, it can be a very personal decision, and as such, not easy. However, you will want to make sure you take all of the proper steps.
Steps to Take to Properly Dissolve a Company
If you took all of the proper steps to incorporate your business at the time it was being established, you must have filed Articles of Incorporation with the Secretary of State, where your company is located. As such, if you are looking to now dissolve your company, you will be required to file Articles of Dissolution. Failure to properly submit all of the required documents, when dissolving a company can result in the owners and partners still being on the hook for taxes and such.
Additionally, by doing so, it will provide notice to any creditors, vendors, or others with whom you have been conducting business, therefore ensuring that any outstanding debts or payments can be properly resolved.
Additional steps you will want to take include:
- If your business is a partnership, you will need to follow the steps for dissolution as spelled out in your partnership agreement. If there is no such language in your partnership agreement, it is best practice to provide your intention to dissolve the company in writing.
- Hold a vote, in accordance to any procedural documents your company has, among the partners or shareholders, to dissolve the company. In most cases, a majority of two-thirds is required.
- Any operating records pertaining to the company will also need to be filed with the Secretary of State.
- Ensure you know what the proper protocol is in your state regarding when you are expected to file your Articles of Dissolution; in some states all debts with creditors must be resolved prior to filing, while in others, it is expected that you file your paperwork first.
- Settle any back taxes that may be owed, in accordance with the laws of the state in which you do business
- Notify the Internal Revenue Service, in addition to your state’s Secretary of State.
- File any necessary tax documents with the appropriate tax agencies.
- Cancel any business licenses you may have had by contacting the issuing agency. For example, if you owned a restaurant that served alcohol, you will have a liquor license, so this will need to be cancelled.
Yes, there is a great deal of paperwork to take care of, and any number of people or agencies to whom you will need to reach out. Fortunately though, the IRS and most states provide information on their websites, including checklists of everything you will need to do in order to properly dissolve your business.
If your business is registered as a sole proprietorship, you are not necessarily required to file Articles of Dissolution. However, the state in which you are located may have certain guidelines or procedures which you will be required to follow. Additionally, you will want to ensure that you are taking proper steps to wrap things up with those with whom you have business relationships, such as clients and vendors.
What Are Articles of Dissolution?
So, you know that you are going to be required to file Articles of Dissolution with the Secretary of State where your company is located, in order to close up shop and dissolve the business. But, what exactly are the Articles of Dissolution? Essentially, they are simply the opposite of the previously filed Articles of Incorporation. Where the Articles of Incorporation established your company as an LLC or a corporation, the Articles of Dissolution terminates the company and its operations.
Additionally, this document serves to define the parameters of the dissolution, including the sale of assets, compensation for shareholders, and the division of responsibilities among the managers.
Should you have any questions or concerns regarding the necessary steps that need to be taken, or creating your Articles of Dissolution, contacting an attorney who specializes in business law can be of great help.
If you need help with a company dissolution, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.