During this recession, more and more corporations are finding themselves in the same predicament: they are closing their doors. But just as a corporation must take the proper legal steps to get incorporated to legally operate within a particular state, taking the proper legal steps to dissolve the corporation is just as important. Until your corporation has been completely legally dissolved, state and federal governments will expect you to continue to fulfill certain legal requirements and tax obligations.
First, you must convene a meeting of the corporation's board of directors; have them adopt a corporate resolution that the business be dissolved. It is important that a vote be taken, that minutes be recorded, and that the minutes of this meeting be retained in your corporate documents. Following approval by a vote of the board of directors, a majority of the company's shareholders (usually two-thirds) must also approve this resolution, called Articles of Dissolution, to dissolve the business.
Next, these Articles of Dissolution must be filed with the Secretary of State. Upon certifying that all due taxes have been rightfully paid, the Secretary of State can officially approve the dissolution in order that any of the corporation's assets can be fairly distributed among the shareholders. The Internal Revenue Service and the State Franchise Tax Board must also be formally notified. Be sure to cancel any leases, licenses and financial accounts that have been operating in the business' name.
Many business owners who simply sold off their inventory and closed their doors without legally dissolving their corporation have been in for a rude awakening. Without legally dissolving a corporation, your business is still responsible for filing local, state and federal taxes and will be penalized with late filing fees for not doing so. The fact that the corporation is no longer conducting business is no defense, if it was never legally dissolved.
Without legally dissolving a corporation, its board of directors and shareholders continue to be at risk for personal liability in matters involving the corporation. Without proper dissolution, your corporation is legally required to file an annual report and will receive monetary penalties if this action fails to be taken.
Even though your product may no longer be sold or manufactured once your business doors are closed, you continue to be at risk from lawsuits and product liability claims if the corporation has not been dissolved.
You risk further legal entanglements by not properly dissolving a corporation, because your shareholders will find themselves legally unable to receive allocation of any assets owed them from the business.
To be sure that there are no loose ends when dissolving a business. It is always a very smart idea to seek the counsel of qualified legal and tax professionals who have experience in corporate dissolution matters.