Getting Prepared
Before you can dissolve your corporation, it's a smart move to get a few things together before you file any paperwork. Here are a few things to keep in mind:
1- Make sure you give proper notification to your employees and be aware of any obligations that your company has regarding their benefit and compensation packages. If you have contracts, especially ones that cover a particular amount of time, you have to "buy them out" of their contracts. Giving your employees notice also lets them make plans to pursue their next opportunity.
2- Check the terms of your lease and see what is required if you go out of business or vacate the property. If you're unsure about what you can or can't do, you should consider consulting with an attorney.
3- Examine any and all contracts you have with your customers. If you won't be able to uphold your end of the bargain, figure out how to solve that issue by transferring, amending, or voiding the contract. If customers owe you money, collect what you can before dissolving.
4- Anticipate what you will owe in final taxes and make sure you have enough money to cover any final amount due. Your final tax return should be filed at the normal filing time, and you will want to make sure it is marked "final return."
5- Importantly, if you do not have a Buy-Sell Agreement in place, you may want to create one now. This document can help codify the rules for dissolving your corporation and is especially useful if you have multiple owners.
After you've met all your obligations, ask yourself how the remaining assets of the corporation supposed to be distributed. Your governing corporate documents may provide guidance. If not, following state statutes is a good idea.
How to Dissolve Your Corporation
Typically, a dissolution procedure is outlined in your articles of incorporation or other formal corporate documents, like your Buy-Sell Agreement. Usually, it requires a vote by your shareholders, members, or board of directors.
The effective date of the dissolution is critical and may depend on the factors outlined above. Before you take the vote, you may need to be able to advise the voting members on those matters so that they are fully informed of the consequences. Once the vote is cast, make sure you carefully memorialize the resolution in your corporation's minutes. If you can't find a specified procedure for dissolution in your documents, then follow the procedure outlined in your state statutes.
Also, if you have creditors, make sure you properly notify them of the dissolution and the effective date in order to limit your liability to them.
And finally, when dissolving a corporation, file the proper paperwork with the Secretary of State. It is usually not complex, but it is a formality that you must attend to, and the effective date on the paperwork may provide a defense against debt or liability.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
