Status Dissolved: Everything You Need to Know
Status dissolved companies are formally closed down. Not only does that mean it no longer operates, but there are also other matters that need attending to.3 min read
Status dissolved companies have been formally closed down. Not only does that mean it no longer operates, but there are also other matters that need attending to. All assets and liabilities must be addressed, similar to the process of settling the estate of someone who has passed away.
There are many reasons that a company may choose to dissolve, such as when the owner decides to retire or if the company simply is no longer active. However, dissolving a business does not get rid of any debts it owes. If creditors are not notified of the company's dissolution, the owners may be subject to litigation.
Paperwork Needed to Dissolve a Business
Various forms need to be completed and submitted for filing to dissolve a business. These include:
- A resolution to dissolve by the owners or board of directors.
- Approval to dissolve by the shareholders, who must vote on the resolution.
- Articles of dissolution, filed with the secretary of state office. This must be the same state where the business was formed.
Other requirements vary by state. For example, some states require a two-thirds majority vote, while others permit a majority of any ratio.
The next step in dissolving a business is notifying all of the company's creditors and making sure all debts are paid before the business can be wrapped up. During this process, the company may not sign any new business contracts, but it must fulfill all terms of existing ones.
Liquidating and Distributing Assets
All property that is owned by a business is sold off. If the property is used as loan collateral, the loan must be paid off before it is sold, or the property must be transferred to the lender. If a business is insolvent at the time that it's dissolved, it may not be able to liquidate all of its assets.
Liabilities include any business obligations, which may include items or services that customers have paid for and the company has not yet delivered. It also includes any debts. These need to be settled before dissolution can progress.
Any remaining assets are distributed to the company's shareholders according to the number of shares each owns. Form 1099-DIV must be filed with the IRS and also given to these shareholders because these distributions need to be reported.
Companies that dissolve must file a final tax return. This document must report all of the business's financial activity in detail, and the “final return” box in Item E must be checked off.
The company needs to cancel its federal tax ID number or Employer Identification Number. This is a simple process: the company needs to send the IRS a letter saying it no longer needs the EIN because it is dissolving.
Can a Dissolved Company Be Re-Opened?
There are many reasons that a corporation can be dissolved. However, it is usually possible to re-open the corporation. Each state has its own laws regarding the process for re-opening a business that has dissolved, or even governing whether it's allowed to re-open at all.
Most states do not allow dissolved corporations to be reactivated if they voluntarily dissolved. However, there is no reason that corporation cannot be re-formed using the same process of registration as if it were brand new. It may even use the same name as long as it's still available for use. Keep in mind that if this occurs, the corporation will then be a totally different entity from the old, dissolved company.
If the corporation was involuntarily dissolved due to failure to file annual reports or other paperwork, most states allow that corporation to be reactivated by filing the missing reports, paying overdue taxes, or otherwise fulfilling missing requirements. A filing fee is also required. After this is done, the company returns to good standing.
However, even though the process of re-activating an administratively dissolved or involuntarily dissolved company is straightforward and easy to do, it should be avoided for many reasons. Business owners may lose their liability protection, for one thing. For another, if the company has lapsed for five years, it may not be reinstated. If it continues to do business anyway, it will be treated as a sole proprietorship or partnership.
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