Dissolving A Business: Dissolving a Business
LLC, Corporation, Partnership
- A corporation or other business entity may cease operations for many reasons and in a number of ways. When a business is terminated or its legal status changes, there are licensing and regulation requirements which must be met. There are also opportunities for improving the economic prospects at termination for owners and creditors through legal provisions of state and federal laws.Dissolving A Business
- Essentially, following the same process of contact with all registration, taxing and licensing agencies (simply retracing the steps taken during start-up) will guide one through necessary termination procedures.
This outlines the Basic Steps in Dissolving A Business - dissolving a corporation, limited liability company (LLC), or partnership
Basic steps involved when dissolving a business entity.
- Corporate action
- Filing articles of dissolution with the state
- Filing all necessary tax forms with the federal, state, and local governments
- Statutory notification to all creditors
- Settling all creditor's claims
- Distribution of business assets
Dissolving A Business
The business owners of the company must approve the dissolution of the business. Corporations and LLCs are handled as such. With corporations, the shareholders must approve this action. With LLCs, the members must grant approval. To comply with the formalities of a corporation, the board of directors should draft and approve the resolution to dissolve the company. Theshareholders should then vote on that resolution once approved by the directors. Both actions should be documented and placed in the corporate record book. Even though LLCs are not subject to the formalities, documenting the decision to dissolve the LLC and the member's approval is recommended.
Filing the Certificate of Dissolution with the State
After the shareholders or members have voted to dissolve the corporation or LLC, the appropriate paperwork must be filed with the state. If the business has qualified to transact business in other states, the appropriate paperwork must also be filed in those states. The process for filing the certificate of dissolution varies by state. Some states require the documents be filed before notifying creditors and resolving claims. Other states require the documents be filed after. Your Secretary of State's office should be contacted. Certain states require tax clearance for the company before the certificate of dissolution can be filed. In these cases, any back taxes owed by the corporation or LLC must first be paid. Business Filings Incorporated prepares and files certificates of dissolution in all 50 states.
File All Necessary Federal, State, and Local Tax Forms
Even though you are ceasing operations, your tax obligations do not immediately cease. You must formalize the closing of the business with the IRS as well as your state and local taxing agencies.
Notifiy All Creditors
Notify by mail all of the company's creditors of the dissolution. The noticeshould include the following information:
- That your corporation or LLC has been dissolved or has filed the statement of intent to dissolve.
- The mailing address to which creditors must send their claim.
- A list of the information that should be included in the claim.
- The deadline for submitting claims.
- A statement that claims will be barred if not received by the deadline.
- It is possible that your state may allow for claims from creditors that are not known to the company at the time of dissolution. In these states, notice in the local paper of your company's dissolution may be required. It is best to seek the advice of an attorney regarding what your state mandates.
Settling Creditor's Claims
Claims submitted to the company by creditors can be accepted or rejected by your company. Accepted claims must either be paid or arrangements that are satisfactory to creditor must bemade for repayment. With rejected claims, you must advise creditors in writing that your company rejects their claims.It is advisable to seek the services of an legal analyst to assist in this process. Your attorney can advise you about the state's statutes governing actions on rejected claims.
Distribution of Remaining Assets
After payment of creditor's claims, the remaining assets may be distributed to the owners of the company. Assets are distributed in proportion to the share of ownership. Distributions must be reported to the IRS. If you have a corporation that has multiple classes of stock, the corporate bylaws typically outline the procedure for distributing assets to these shareholders.
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