Dissolving a business may not be a step that you want to take, but sometimes it’s unavoidable. Below are the 6 steps necessary for completing the process, and if you need help with dissolving your business, there are plenty of companies out there who can make the process a lot easier and less stressful for you:
Step One – Corporation or LLC action
The dissolution of any business must first be approved by the company owners; in the case of corporations, the shareholders must approve it, while for LLC’s, members must grant approval. In order to comply with corporation formalities, a resolution should be drafted and approved by the board of directors, and shareholders should then go on to vote on the director-approved resolution. All documents must be documented accurately and put in a corporate record book, for both corporations and LLC’s.
Step Two – filing the certificate of dissolution
Once votes have been placed by shareholders and members, the appropriate paperwork must be filed with the state where the business was incorporated. For other states that the business may have had transactions in, paperwork must be filed there, too. Varying state to state, the process for filing the Certificate of Dissolution may require documents to be filed before creditors are notified and claims are resolved, while others may require it to be filed after that.
Some states require tax clearance for a company before the certificate can be filed, but back-taxes owed must always be paid first.
Step Three – filing federal, state and local tax forms
Unfortunately, your tax obligations don’t end just because your business has, and you must clear all outstanding tax obligations with the IRS and state and local taxing agencies, before the process can be considered complete. You must also remember your payroll obligations if you have workers.
Step Four – letting creditors know that your business is closing
It’s essential that you notify your creditors by mail that your corporation or LLC has dissolved, and for the full details as to what you must include in the notification, you should consult with a local tax specialist who will ensure that include all the relevant information.
Step Five – creditors’ claims must be settled or rejected
A claim that you accept to pay must be paid or satisfactory arrangements made to pay it in the near future, and in the case of rejected claims, you need to advise creditors in writing of that fact. It’s important that you seek professional advice and guidance before completing this step (and any of the others) to ensure that you fully understand what your legal obligations are.
Step Six – remaining assets and their distribution
Once all claims have been paid, you’ll need to distribute the remaining assets to the owners of the company, in proportion to their respective shares of ownership. All distributions must be reported to the IRS, and for more details on this and your ongoing contingent liabilities, seek professional help from a tax consultant/adviser.
To help make the dissolving of your business less stressful, and to ensure that you comply with all legal obligations, consult with a tax professional today.