Dissolving a corporation can be an extremely complicated process. For a corporation to be considered properly dissolved, the following steps are required:
- a formal corporate action
- a filing with the appropriate state offices
- a statutory notice to creditors
- processing of all creditor claims
- sale and distribution of all remaining assets
First, the corporation’s board of directors has to meet and propose a corporate dissolution. Minutes of this meeting must be recorded by the corporation’s secretary in the corporate book. After this has occurred, a majority of shareholders must approve the board of director’s proposed dissolution action. The corporation is then required to file IRS Form 966 within 30 days after the adoption of a plan or resolution to dissolve the corporation. Also read Dissolving a Corporation: Necessary Legal Steps for more helpful pointers on this topic.
State laws vary, but some states require approval by at least two thirds of all voting shares of the projected corporate dissolution. Read The Shareholders of a Corporation for some good advice on shareholder rights and responsibilities. In a number of states the corporation must file a Statement of Intent to Dissolve before initiating the closing stages of the procedure. Creditors must be advised of the imminent dissolution at this point, payment should be made to creditors, and the remaining assets are dispersed among the shareholders. After this, the corporation is required to file Articles of Dissolution.
Some states require tax clearance, which obligates corporations to acquire a certificate or statement from their state-taxing authority declaring that the dissolved corporation is not in arrears on its state tax liability. You must submit this tax-clearance certificate to the state agency that files the articles of dissolution.
The corporation must provide all known claimants and creditors with a notice of the pending corporate dissolution. This statement must include:
- notification that the corporation has been, or will be, dissolved
- a mailing address to which the creditor may send his or her claim
- a request for the information that must be included in a claim
- the deadline for submitting a claim (which is usually 120 days after the date of the notice)
- a statement that any claim will be barred if not received by the stated deadline
Payment arrangements should be made whenever a claim is accepted. If a claim is rejected, the corporation must advise each creditor of the denial in writing. The letter of rejection should make it clear that the claim will be legally banned unless the creditor attempts to enforce the claim during the period set by state statute. The corporation’s remaining assets may be distributed to shareholders only after all claimants have had their claims addressed in a satisfactory manner. Distributions to shareholders must be reported to the IRS.
Some states require that notice be given even to creditors that the corporation is unaware of at the time of dissolution. An example of this might be someone who is injured by one of the corporation’s products years after the dissolution was completed. Generally, this kind of notice is published in a local newspaper in the area of the corporation’s principal office.
When the corporation’s principal office is out of state, this notice must be published in local newspapers within the state of dissolution. The notice must include the effective date of dissolution, the mailing address for creditor claims, what information must be included in a claim, and a statement that a claim will be barred unless the claimant files an action to enforce his claim within a set legal period.