Dissolving a Corporation

Although you might not want to think about it now, sooner or later your company’s life will end.  Dissolution can be more complicated than corporate formation.  When that happens, someone is going to have to tie up all the loose ends and fulfill the company’s final legal obligations. But how do you do that?

Here’s what you need to know about dissolving a corporation.

The process for dissolving a company depends a lot on the structure of the business itself.  Since corporations involve multiple interests in the form of shareholders, some special handling is required.  Even though the specifics of corporate dissolution vary according to the state in which the business was incorporated, here are some of the common questions you’ll need to address.

Do I need to officially dissolve my corporation if I no longer do business?

Don’t assume that your corporation is finished the moment you get rid of your merchandise and close the doors for the last time.  From a legal standpoint, your corporation continues to exist as a business entity regardless of whether or not you are still doing – or have ever done – business.  As such, the state continues to expect the corporation to fulfill its legal requirements until such time as it has been officially dissolved.

How do I officially dissolve my corporation?

The first step in officially dissolving a corporation is the adoption of a corporate resolution to dissolve by the board of directors.  A vote must be taken and the minutes of the meeting must be recorded.and retained in the corporate records.  Once the resolution been approved by the board of directors, it must also be approved by a majority (in some cases two-thirds) of the corporation’s shareholders.

Next, the corporation needs to file Articles of Dissolution with the secretary of state.  In some states this is done with a simple certificate while others require a more complex process.  Once the state has approved the dissolution, the corporation’s assets can be distributed to its shareholders.

What happens if I fail to officially dissolve the corporation?

The consequences of not dissolving your corporation can be severe and are not worth taking the necessary steps to make it official.  Aside from a lack of corporate closure, some of the consequences you may be forced to deal with include the following:

  1. Tax Filings.  Until the corporation is formally dissolved, it will continue to be required to file all relevant federal, state, and municipal tax reports.  Failure to do so will result in the normal penalties and fees associated with a late filing.
  2. Personal Liability.  Since the business is still considered a legally viable entity, its officers, directors, and shareholders may be personally liable for the corporation, even if it is no longer doing business.
  3. Annual Reports.  Your corporation will need to file annual reports every year (and pay the penalties for neglecting to file them) until the corporation is dissolved.
  4. Future Product Liability.  A corporation that has not been officially dissolved continues to risk future product liability from the products it sold while it was in operation.
  5. Asset Allocation Delay.  Shareholders are not legally entitled to their share of the corporation’s assets until it has been officially dissolved with the secretary of state.
Published in: on August 3, 2010 at 11:19 am  Comments (1)  

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  1. hi there hows it going

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