What’s a business dissolution? This means that the business is no longer seen as active and is formally closed with the state of its incorporation. By filing articles of dissolution, this keeps the owner from being charged annual state fees and taxes formerly associated with the business. Here’s how to dissolve a business with the Secretary of State, along with tips for reinstating the company if your business fell into bad standing.
Steps to Dissolving a Business
1. Filing Articles of Dissolution
Also referred to as a certificate of dissolution, these documents essentially declare your corporation or LLC as no longer in existence with the state. While the requirements for dissolution vary from state to state, most corporations or LLCs will need to provide their name, date the dissolution will take effect, reason for the dissolution and, if there are any, information on pending legal actions. If the company is registered to do business in another state, an application of withdrawal must be filed to avoid being liable for future annual reports and state fees.
Before filing these articles, however, it’s important to make sure that all managing members (for an LLC) or the board of directors (for a corporation) have voted and agreed on the dissolution. Corporations also require shareholders to vote since they are usually publicly traded businesses. If a vote is not secured, it’s in your best interest not to dissolve the company.
2. Send Cancellations and Notices
When a public corporation dissolves, most states require the business to formally make an announcement in a dissolution proposal. The proposal will be part of public record and names the corporation involved, along with a statement that confirms the dissolution proposal was adopted by a majority vote. Within 30 days of filing the articles of dissolution, corporations also need to file Form 966 for ‘Corporate Dissolution or Liquidation’ with the IRS.
3. Distribute Assets
What happens to the assets of a business when it dissolves? First and foremost, all creditors must be paid back, and if there’s anything leftover, the assets must be distributed to the owners based on the percentage of the company they own. For corporations, shareholders are paid back based on how many shares they own with returning their outstanding shares. For LLCs, assets are distributed in accordance to how much the members originally contributed.
What if my business was dissolved involuntarily?
If your business accidentally fell into bad standing, whether that means forgetting to pay a filing fee or sending in your annual report late, it might have been involuntarily dissolved. However, it is still possible to reinstate the business. First, find out why you were dissolved and do the necessary paperwork that covers this reason. For example, if you didn’t file your annual report on time, you’ll need to file a delinquent form for the annual report. After doing this, you can complete and send in your reinstatement application, along with any accompanying fees, to get your company back in business.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.