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Dissolving Your Business
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 state’s
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 enquire about whether you’re
entitled to claim any losses this way.
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