1. Information About Dissolving a Corporation
2. Dissolution
3. Liquidation
4. Dissolution by the State

A shareholder resolution to dissolve corporation agreement is an authorization used when shareholders, during a formal meeting, agree to dissolve the corporation.

Information About Dissolving a Corporation

When the formal meeting is held, the shareholder resolution includes the date of the meeting, notes that a quorum was present and that an agreement was made regarding the dissolution of the corporation. The incorporation of a small business creates a new legal entity that is separate from you in terms or rights and responsibilities. It is also separate from any other person who owns a share of the company.

If the business gets to a point where it is no longer viable or you want to cease operations, you would take the necessary steps to terminate the corporation as a legal entity by dissolving it according to the laws of the state where it is registered. Part of the dissolution process is settling the affairs of the corporation, which includes liquidating any remaining assets held by the corporation.

Dissolution

Each state has its own set of corporate laws that specify the requirements for the dissolution of a corporation. Typically, the dissolution process is as follows:

  • The dissolution is initiated by a resolution by the board of directors who submit it at a meeting of the shareholders.
  • The shareholders each vote and if the resolution is approved, the directors have the authorization to proceed with the dissolution process.
  • The appropriate paperwork is filed with the state, such as articles of dissolution accompanied by a statement that the dissolution was approved by a vote of the shareholders.
  • Depending on the state, a Certificate of Dissolution is filed with the Secretary of State's office once the shareholders approve the decision to dissolve the corporation.
  • In some states, it is also possible for a dissolution of a corporation to be authorized without any action from the board. In this case, all stockholders must consent to the dissolution and can do so by casting their vote in writing.
  • If a minority of the corporation's shareholders vote in favor of a dissolution, no action can be taken. A majority vote is required.
  • Some states allow a shareholder to file a lawsuit to involuntarily dissolve a corporation.

The dissolution of a corporation is not in effect until all steps have been taken to complete any outstanding business affairs of the corporation. This includes collecting all corporate assets, selling those assets that will not be distributed to the shareholders, and arranging the satisfaction of the corporation's outstanding debts and obligations.

A clearance is usually required from the state's taxing authority noting that the state taxes owed by the corporation have been paid. It may also note that no taxes are owed.

Liquidation

When all of the assets of the corporation have been sold, it has been liquidated. Once corporate assets have been liquidated, they are distributed, which can be in the form of cash or property, to the corporation's shareholders. They, in turn, exchange their shares of stock in the corporation for their share of the liquidated assets. Once the distribution of the assets to the shareholders is complete, this constitutes the final step in the dissolution of the corporation.

If a resolution of the corporation's outstanding debts and/or obligations were handled and resolved, shareholders are not liable for any corporate debts. The state law generally holds each shareholder liable for corporate debts that remain unpaid up to the value of the assets that were distributed to the shareholder.

Dissolution by the State

Corporations must adhere to state law requirements if it is to remain in good standing and continue to exist. For example, corporations are required to submit an annual informational report. If the corporation fails to submit the required report, its operations in that state are suspended. If the failure to report is not rectified in a timely manner, the state has the authority to administratively dissolve the corporation and terminate its existence.

Laws vary from state to state and how the state where your corporation is registered will determine how the dissolution is processed. In general, it may be treated as a liquidation followed by a distribution of the assets to the shareholders. If the state takes steps to dissolve the corporation, it may result in negative tax consequences for the shareholders.

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