It is said that running a business is a combination of luck and hard work. Sometimes, one or both of these two factors is lacking, and despite a lot of efforts to save the business, it becomes untenable. At that point, there’s really no alternative but to shelve the business altogether.

There are certain common steps involved in dissolving a corporation, or an LLC, or a non-profit corporation. Basically the following six steps are involved in the dissolution.

  • Corporate action. To dissolve a company, it is necessary for all the owners to agree on the situation and what will follow after the company is wound down. That means that for corporations, the shareholders (i.e. the owners) must approve the decision and reach a common verdict on it. In the case of bigger corporations and LLCs, usually a draft is formatted and approved by the board of directors, to dissolve the company. Thereafter the shareholders vote to approve the directors views. These things need to be entered in the record book of the corporation. LLCs formally document the pronouncement and the members approve them. In the case of smaller businesses, the members and owners are often involved in the day-to-day activities of the company, so it may be easier for them to get acquainted with its problems and find common agreement about the need to dissolve it and how that should be done.
  • Filing the articles of dissolution: The paperwork and other necessary documents need to be produced to the state, once the decision is finalized. If you have propagated your business to other states, those states also need to be informed and files submitted. To resolve claims by notifying the creditors is considered necessary before filing a certificate of dissolution in many states. The secretary of your states office can provide valuable information regarding the filing of articles of dissolution. Many states prefer to have clear tax records before the filing is done.
  • Filing of federal, state and local tax forms. Even after stopping production in your business, your tax obligations don’t stop instantly. The documents regarding the closing of the company should be submitted to the IRS and the state and local tax agencies. In case of employees, reporting the payroll may be compulsory, in order to safeguard their interests.
  • Informing the creditors. You must inform all your creditors regarding the dissolution of the company. Also include your mailing address for their convenience, as they may want to make a claim on the assets of the business. Also state what documents are necessary to file for claim. After issuing notice, usually the claim should arrive within a period of 120 days. Notify the creditors regarding the deadline. Obviously a note of warning should end the notice saying the claims will not be processed if they’re posted after the due date. Sometimes even notice in the local newspapers is legally sufficient.
  • Handling the creditors claims. After the creditors make their claims, it is at the company's discretion either to accept or reject the claims. If accepted, the company should take necessary steps to pay the claimants or look for a way of settling the claim. The creditor may agree upon a percentage of the original claim amounts, if the whole amount won’t be forthcoming. However, if you reject the claim, you must inform the creditor in writing.
  • Distribution of remaining business assets. The remaining assets of the company, after the payment of creditors, should be distributed among the owners of the company. Depending on your share of the ownership, a percentage of the assets will be distributed to you, which should be reported to the IRS. Corporate bylaws recommend how to distribute the assets in case of common and preferred shares.
  • Finally, you may be covered by a certain amount of insurance, so do inquire about whether you’re entitled to claim any losses this way.
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