Notice of Corporate Dissolution: Everything You Need to Know
A notice of corporate dissolution offers suppliers the ability to collect unpaid debts. This notice is one of the first steps involved in dissolving a company.3 min read
Dissolving a Corporation
Dissolution of a corporation occurs after a company either voluntarily or is ordered to dissolve the company. During the process, any assets are liquidated to pay off debts. Once a business has closed its doors, the process of dissolution begins. This process can be lengthy and complex, but every step is important.
Types of Corporate Dissolution
Dissolution falls into one of two categories:
- Voluntary: A voluntary dissolution occurs when a unanimous vote is conducted and the members all agree to dissolve the business. It is possible to dissolve a corporation with a majority vote as long as specific notices are given. This process is most commonly used when a business has been inactive for a long period of time. However, larger, active corporations may also be eligible for majority vote dissolution.
- Involuntary: There are some situations in which the state might require a company to dissolve, including failure to pay taxes, fraud, abusing authority, failure to register an agent, or failure to notify the state of any major registered agent changes. It is important to note that some states have their own requirements that could lead to an involuntary dissolution if they are not followed.
Paying Debt Before Corporate Dissolution
In most cases, corporations are required to pay off any debts before dissolution. The corporation is required to submit a notice to all vendors of its intent to dissolve. The intent to dissolve should include a deadline that is at least 120 days after the notice. Any unpaid vendors must then submit any unpaid invoices within this time period. Failing to file within this time period will void the claim.
Corporations can have an intent to dissolve published in the newspaper of record in the county in which the corporation is registered. In this case, unpaid vendors have up to five years to bring a claim against the company. If no funds remain after the liquidation, then any assets distributed to the directors will be paid to these claims.
Filing for bankruptcy instead of dissolution offers some financial relief for the company. The company will instead follow either Chapter 7 or Chapter 13 requirements. However, a company is not dissolved after filing for bankruptcy. The bankruptcy must also be approved by the state.
Voluntarily Dissolving a Company
The shareholders of the company will vote for a voluntary dissolution. If enough votes support the dissolution, then the intent to dissolve is filed with the state. After the document has been filed with the state, the company begins the process of winding down.
This process includes liquidating assets and paying off debts. If there is any money left over after this process, it is divided among the board members and directors.
Upon the completion of the winding-down process, the company will submit the articles of dissolution to the secretary of state. The articles of dissolution should include the following information:
- Agreement that all debts have been paid.
- Documentation that all company property and assets were distributed to the appropriate parties.
- There are no remaining legal actions against the company.
After submitting the articles of dissolution, the company is officially dissolved and no longer exists.
Intent to Dissolve
One of the first, and most important steps when dissolving a company is to fulfill obligations. Companies that want to dissolve should release an intent to dissolve. This intent to dissolve should include the following information:
- A detailed description of the claim.
- Information regarding the claim, the amount of the claim, and whether it is admitted to or not.
- A mailing address where any claims can be sent.
- A deadline: This must be at least 120 days after the written notice date.
Having an intent to dissolve published in a newspaper can also help to ensure that all potential claimants are available to view the intent. Although giving notice is optional, it protects the company from claimants coming forward later on. It can also prevent mistakes, such as distributing too much to directors and then requiring them to pay later on.
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