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 company altogether.
There are specific common steps involved in dissolving a corporation, or an LLC, or a non-profit corporation. The following six steps are involved in the dissolution.
- Corporate action. To dissolve a company, all the owners must agree and what will follow after the company is wound down. That means that the shareholders (i.e. the owners) must approve the decision and reach a common decision. In the case of larger corporations and LLCs, a draft is usually formatted and approved by the board of directors. Thereafter the shareholders vote to approve the director's decision. LLCs formally document the need for dissolution, and the members approve them. For smaller businesses, the members and owners are often involved in the company's day-to-day activities, so it may be easier for them to agree 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 submitted to the state. If you have foreign qualified 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 dissolution is approved.
- Filing of federal, state and local tax forms. Even after ceasing operations, 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.
- 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 a claim. After issuing notice, usually, the claim should arrive within a period of 120 days. Notify the creditors regarding the deadline. Some states allow the notice to be placed in local newspapers.
- Handling the creditor's claims. After the creditors make their claims, it is at the company's discretion to accept or reject the claims. If accepted, the company should take the 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; however, you may need to inform the creditor in writing if you reject the claim.
- Distribution of remaining business assets. After the payment of creditors, the remaining assets of the company should be distributed among the owners of the company. Corporate bylaws recommend how to distribute the assets in case of common and preferred shares.