How To Close a Corporation in Texas
How to close a corporation in Texas is the legal process of "winding up" your state-registered business entity.3 min read
2. Winding Up Final Business
3. Filing the Certificate of Termination
4. Completing Final Business Actions
5. Paying Franchise Taxes
How to close a corporation in Texas is the legal process of "winding up" your state-registered business entity. These steps end its existence, shielding the owners from outstanding creditors and claimants.
Getting Shareholder Approval
Texas business entities must have one of two approval methods to dissolve:
- Written consent from all shareholders
- Board of directors action voted on by shareholders
The first method is commonly called consent and requires all shareholders to sign a document indicating their approval of the dissolution. This is common for small businesses in which most of the shareholders also act as directors, and when they unanimously agree to close the business. An attorney can help you create the consent document.
With the latter method, the board adopts a "winding up" resolution and submits a shareholder proposal to that effect. At the next shareholder meeting, the shareholders will vote on the issue. You must give at least 10 days notice of this meeting to all shareholders with voting rights.
You'll need a two-thirds majority of shareholders to vote on the action to close the business unless you have stated a different percentage in the company's certificate of formation. The resolution and votes must be properly recorded.
Winding Up Final Business
After shareholder approval has been granted, your business ceases to exist except for the purpose of completing these final tasks:
- Notifying each known claimant of the dissolution in writing with the help of your business attorney
- Prosecuting and defending outstanding lawsuits
- Collecting and selling corporate property, other than assets which will be distributed to shareholders
- Making provision to discharge all of the company's obligations and liabilities
- Paying creditors and taxes, which must be done before distributing assets to shareholders
If you have foreign corporations associated with your Texas corporation, you'll need to dissolve those first before terminating the main domestic corporation.
Filing the Certificate of Termination
First, you'll need to contact the state's Comptroller of Public Accounts (CPA) to receive a certificate of good standing. This indicates that all business taxes have been paid and your company has otherwise fulfilled its requirements and duties.
File Form 05-359 and expect to receive your certificate of good standing within six weeks. Once you have this document, it should be attached to your certificate of termination. You must provide an official certificate; a website printout is not sufficient for the purpose of closing your business.
Download and submit Form 651 from the CPA website. This should be done after all winding up tasks are complete. You'll also need to pay a state filing fee of $40. In most cases, your certificate of termination will be processed within five business days.
As soon as these documents have been processed, your business name becomes available to other Texas companies. Do not dissolve your Texas business unless you are sure you no longer want to do business under that name.
Completing Final Business Actions
In addition to the official winding up tasks described above, you'll need to take other steps to close your business.
- Close all existing corporate bank accounts to avoid future legal obligations and fees.
- Cancel outstanding state and local business licenses and permits to avoid reporting requirements and fees.
- File IRS Form 996 within 30 days of the approval of your dissolution plan.
- Cancel your federal EIN. This can only be done if you are in good standing with the IRS.
- When you file your final tax return using IRS Form 1120, be sure to check the "final return" box on the form.
Paying Franchise Taxes
Your business can be terminated in the state of Texas if you fail to pay franchise taxes. If your franchise taxes are more than 60 days late, you'll be charged interest of prime rate plus 1 percent. The day after your due date, you'll be charged an immediate 5 percent penalty. A second 5 percent penalty is levied 31 days after your due date.
You will need to satisfy all interest and penalties as well as the outstanding franchise tax report to reinstate your business if it is terminated for failure to pay franchise taxes. This requires a tax clearance letter from the state comptroller.
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