Dissolving your Business the "Right" Way
There comes a time for nearly every business when it must shut its doors, cease operations, and dissolve. While it can be for any number of reasons, the process of properly closing a business can be a relatively lengthy and stressful, independent of the cause. Read ahead for a chronological list of the six most important steps to properly dissolve a company.
1. Take the necessary internal actions.
The first step to a successful dissolution is to ensure that all of a company’s owners (or, in the case of a corporation, the shareholders) approve of the decision. This is usually a very natural and streamlined process for smaller organizations, as all of the owners will typically already be aware of the circumstances.
For larger companies, the internal dissolution process will often be clearly outlined in their corporate bylaws. If a corporation is publicly traded, the process requires a shareholder vote in order to be considered valid. Even though LLCs are free from many of the internal formalities of dissolution, it is highly recommended that the proper measures are taken to ensure all members approve of the closure.
2. File a Certificate of Dissolution with your state of incorporation.
Once all the appropriate internal measures are complete, the next step towards proper dissolution is filing a document (called a “Certificate of Dissolution”) with any and all states that the company operates in. This includes any states in which the organization is officially incorporated or foreign qualified.
While filing a Certificate of Dissolution can usually be done before a few of the following steps listed in this article, it should be noted that there are some exceptions. Some states require that certain clearances are received from state tax boards or creditors before a Certificate can be approved. It is advised that you seek the guidance of a filing professional, a professional registered agent, or your local Secretary of State’s office as you decide the ideal file date.
3. Ensure your business is up-to-date and compliant with all taxation issues.
Even though your business might be closing, you may still have financial obligations that will need to be addressed (e.g. taxes or payroll). The IRS will typically help you through this process, to ensure that they receive all necessary revenues. However, as with any financial related issues, it is a sound idea to consult with a tax attorney or accountant during this process.
4. Officially notify all known creditors of your planned dissolution.
Just because your business will be closing does not mean that you will be absolved of your business’s outstanding debts. As a result, you will be required to officially notify all of your known creditors of your planned dissolution. This involves sending a written notice to each of your creditors that includes a reliable set of contact information, your expressed intent to dissolve, and a firm, legally enforceable, deadline that states a clear send-by date for the creditor to send their claims to you (often 120 days from the date of notice).
There may be a few other necessary, state mandated steps to this process, depending on where you are incorporated. These can include seemingly trivial formalities such as posting a notice of your dissolution in local papers, or making allowances for unknown creditors to pursue their debts after your claim deadline. If in doubt, it’s best to ask for guidance from a business expert.
5. Settle any outstanding debts with creditors.
Once you have informed your creditors of your dissolution, you can expect to start receiving claims. It is entirely up to your company whether you choose to accept or decline each of these claims, but any correspondence regarding a claim must be done in writing. It should be noted that many dissolution related claims are often negotiated to receive a substantial, but reasonable, discount.
6. Distribute any remaining financial assets between partners.
Once your business settles any tax requirements and claims by creditors, the final step in proper dissolution is to distribute the remaining financial assets to each partner. This is typically done in accordance to ownership percentage. In the case of companies that have outstanding preferred stock, or special considerations outlined in their bylaws, assets may be divided differently. All of these distributions must be reported to the IRS, in order for them to be reflected on each owner’s personal taxes.
Swyft can help
If it's time to dissolve your business, let the professionals at Swyft talk you through it. Contact one of our business professional today!