There are two primary Acts that dictate the necessary legal steps for dissolving a corporation: the Model Business Corporation Act (MBCA) and the Revised Model Act. Each consists of the same basic legal requirements, but the steps take place in a different order. The Model Business Corporation Act requires a corporation to file a statement of intent to dissolve before starting the winding-up process. After that process, only then can the corporation file the articles of dissolution. The Revised Model Act, used by many states, permits a corporation to file articles of dissolution prior to beginning the winding-up process. Before voting to dissolve a corporation, contact a legal representative who can advise you as to which Act is followed in your individual state.
For states that operate under the Revised Model Act, which allows dissolution articles to be filed prior to winding-up, a dissolved corporation continues its corporate existence but can no longer conduct any business except what is necessary to finish up its affairs. Once the winding-up process is completed, the corporation’s existence is considered dissolved.
In cases where the state follows the Model Act, which does not allow dissolution articles to be filed prior to winding-up, dissolution articles formally end the existence of the corporation. (There is an exception granted for lawsuits against the corporation and certain shareholder actions.) In addition, IRS Form 966 must be filed within 30 days after the plan of dissolution is adopted by the shareholders, and the statement of intent must be filed prior to the winding-up process.
For all states, the winding-up process, whether permitted before or after the articles of dissolution are filed, is the same. First, the collection and sale of assets that the corporation does not intend to distribute to shareholders must be handled. Then, all corporate creditors must be notified of the dissolution. Once there has been adequate time for the creditors to respond, all claims must be paid in full. At that time, the distribution of the remaining assets to shareholders may take place. For all states, this is the basic order of operations that you should expect to abide by when beginning your dissolution process.
In addition to all of the standardized practices, each individual state has the liberty to amend the Acts by adding additional requirements. For example, some states require that a corporation file a statement from the state-taxing agency verifying that the corporation is current on all state taxes. For this reason, it is important to involve a legal advisor in the dissolution process. You do not necessarily need the legal advisor to handle the actual dissolution (most required forms can be easily accessed and filled out by shareholders), but it will be worth the financial expense to meet with someone and verify you are taking all necessary legal steps in accordance with your particular state’s specific laws.