Dissolving a business can be an emotional and heartbreaking experience for business owners who spend most of their time establishing it despite all the obstacles. Even if closing it is for the common good, it won’t be that easy to bid farewell.
Business dissolution is one of the most challenging decisions you may have to make as a business owner. It won’t simply end by putting all your operations to a stop. It’s a stressful and lengthy procedure with many steps to be taken.
It also must be addressed formally. You need to complete the legal process by finalizing financial affairs, including tax documentation. Otherwise, there will be penalties, which could add to your problems.
The dissolution process may differ from state to state. For instance, in Florida, dissolution starts by determining whether the corporation began its operations or not. Therefore, if your business is established in that state, it’s best to consult a lawyer for state-specific practices and learn how to dissolve a corporation in Florida.
In this article, you’ll learn the proper steps for closing your business to avoid legal consequences and other liabilities. It includes the following:
1. Seek The Approval Of Board Members And Shareholders
The dissolution process starts with a special board meeting with the shareholders. They must approve your proposal to dissolve the company so you can proceed with the succeeding steps. In addition, shareholders may propose a strategy that includes the agreement between the board of directors and asset distribution. This plan of action will commence once approval has been granted.
Of course, not all of them may be in favor of your plans of dissolution. Therefore, you need to get the vote of the majority to proceed with your resolution. In most cases, the majority is two-thirds of the total number of shareholders, but rules may differ from state to state.
Also, remember that the voting process should follow the laws of where the business is established and the company’s bylaws. Once everything is set and granted, you can proceed with the process.
Furthermore, don’t forget to put everything that happens in the meeting on record. Also, it’s best to produce a written agreement completed with the signatures of shareholders who agree and disagree with the resolution. After which, you can move to the next step.
2. File The Articles Of Dissolution
After seeking shareholders’ approval, you need to file the articles of dissolution to your local state secretary or other offices. This step will officially and legally start dissolving your business.
The articles of dissolution or certificate of dissolution include vital information about the business, such as company name and address, date and number of votes, and its execution date.
Filing the articles of dissolution may differ from each state. Some may require notifying lessors to resolve any financial disputes before filing, and others may only ask for them after filing. So, search for your state’s guidelines and follow everything included.
On top of that, it’s important to note that if your company has branches in different states, you would also need to file paperwork in those states. Additionally, some states may require additional forms, which you may also have to pay.
3. Complete Your Taxes
There are tax procedures you need to follow when you dissolve your business. Failure to commit to them can result in legal consequences and penalties. For instance, if you were not able to pay your taxes, the government would take hold of your assets.
Also, the government may hold you accountable if you distribute your assets without paying your taxes fully. Therefore, make sure to follow the rules and regulations thoroughly. You may consider hiring a tax attorney to help you with the process.
The first thing you must do is inform the IRS and file Form 966 for liquidation of assets and business dissolution. Then, file your last tax return and complete the form.
After that, you need to complete the taxes of your employees. These include social security, Medicare, income tax, and unemployment tax. On a side note, the taxes of contractual workers must also be settled and filed using a different form.
4. Inform Your Creditors
You will need to inform your creditors about the dissolution of your business and how much time they have to collect your debts. By doing so, you can prevent further debt that you may incur from your creditors. In addition, you may notify them by sending a mail. You need to include your address so that your creditors know where they can send their claims.
Also, it’s crucial to know the given period when creditors have to make a claim. It may differ from state to state, but mostly it’s within two to three years. Creditors will be banned from making any claims after the given timeframe. You may consult your lawyer to take proper legal action.
Furthermore, you must clean up all your debts before distributing all of your company’s assets to other shareholders. Otherwise, you’ll be held liable, and lawsuits may arise.
5. Distribute Your Assets
After settling prior issues and debts, you’re ready to liquidate and distribute all remaining assets to your shareholders. It involves selling company vehicles, tools and equipment, and real estate for cash. However, some assets are intangible, meaning you can’t convert them to cash. These are contracts, agreements, and intellectual property.
You can also liquidate your assets through auctions. But you may have to do everything to get the highest value for each asset as much as possible. Also, make sure to put the liquidation process on record to help you track any problems that may arise in the future.
6. Wrap Up Your Operations
After the complete dissolution of your business, you have to wrap up your other corporate affairs. If you have remaining obligations with contractual services, this is the perfect time to cut your ties and end any agreements and contracts.
On top of that, make sure to fulfill your commitments to your employees, which includes separation pay, benefits, and other legal documents.
You also need to inform the market about the permanent cessation of your business operations by publishing a statement in various forms of media, such as newspapers and local television sites.
As you can see, dissolving a business is not a simple task. It is a complex process filled with tricky rules and regulations. If you find it difficult to understand, it would be best to ask for legal assistance to guide you throughout the process.
Once the dissolution has begun, it’s not a legal entity anymore. You will be required to take the necessary steps, such as filing paperwork and taxes, addressing creditors, and distributing assets. Complete the mandatory documents and follow all rules and regulations to avoid legal penalties and liabilities.