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Dissolution

Not all corporations exist for an infinite amount of time, in many cases corporations are dissolved. This occurs when a business either decides to stop operating its business or if it is involuntarily dissolved by the state. Similar to filing the articles of incorporation to form your business, should you reach a point where you wish to stop operating your business, there are specific steps to do so. This includes filing the Articles of Dissolution (also known as a Certificate of Dissolution).

How to Dissolve a Corporation

If you wish to dissolve a corporation, you can do so by filing Articles of Dissolution. If you were to not pay the annual fee required, or fail to maintain a registered agent, then you might be involuntarily dissolved.

Voluntary Dissolution vs Involuntary Dissolution

There are two types of dissolution of a corporation, voluntary and involuntary. The main difference is that a corporation chooses to voluntarily dissolve, while an involuntary dissolution is forced by the state.

When a voluntary dissolution is put through it is done through a vote of the shareholders or board of directors of a corporation. It is done by filing Articles of Dissolution. This can occur for many reasons. One reason might be because the corporation is sold, or an issue with management. It can also be done for financial gain.

On the opposite end of the spectrum is an involuntary corporate dissolution. This is usually the result of bankruptcy, failure to file an annual report with the state, or failure to pay taxes.

5 Steps to Dissolve a Corporation

Dissolving a corporation is done in a few specific steps. Although it may vary slightly from state to state, generally they are the same. It is recommended to work with a lawyer to dissolve a corporation to ensure the documents get to the right state agencies.

Board Meeting

After deciding you wish to dissolve your corporation and close all operations, it is not required but recommended to hold a Board of Directors meeting. During this meeting, you should move to formally dissolve the corporation. Then a vote will need to be taken along with the minutes. This should be retained within the records of the dissolved corporation.

When there has been a vote to dissolve a corporation, and it is approved by the Board of Directors, majority shareholders must also vote to dissolve.

File a Certificate of Dissolution With the Secretary of State

After agreeing to dissolve a corporation, the secretary of state needs to be contacted. This is because you will need to obtain the necessary forms to file an official Certificate of Dissolution. There is a specific location, the Division of Revenue, that can help you to dissolve your corporation in the state of Delaware.

Finalize Closing Your Business

After dissolution, your corporation will need to finalize the closing of the business. This will include discharging all of the corporation's liabilities and obligations, as well as finishing all lawsuits, and distributing assets to stockholders.

Obtain Tax Clearance

Once you sign and file the dissolution forms the next step is to obtain tax clearance. This begins the process of notifying the Internal Revenue Service (IRS) to inform them about your intended company dissolution.

It is essential that you pay any taxes that are due in order to be given a tax clearance. This is the only way you can obtain a formal dissolution of a corporation. When you fill out the state and local tax return documents you need to mark "Final Return."

Close all Business Accounts

The final stage of dissolving a corporation is to cancel all permits and licenses, as well as close bank accounts and lines of credit. These are held in your corporate or business name and it is essential that you close these before you can officially move on.

What Happens When a Corporation is Involuntarily Dissolved?

When a corporation is involuntarily dissolved, it means that it did not fulfill its required business obligations. If this is the case, then the Secretary of State will send a deficiency notice. At this point, the limited liability that is typically afforded to corporations will no longer exist. If you continue to do business, you may be considered breaking the law.

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