Dissolving a Corporation

When a company is formed, along with the long-term goals and profit-making strategies, the management necessarily has to also think of what needs to be done in case the company is failing and in losses.

If there are significant losses incurred, there arises a need for getting rid of the debts and liabilities that are due to creditors. In such a condition, one of the options that the management can think of is to dissolve the company.

Dissolution means winding up the business, selling off all the property and possessions, and clearing off the debts and liabilities of the creditors. There are many reasons why there may arise a need for dissolution, such as if the firm is incurring losses and is nearing bankruptcy.

In this procedure, the company assets are sold and the debts are paid off using the money received through the sale. It consists of selling the company's real estate, property, plant and machinery, operating equipment, and other assets.

Once the business debt is paid off, if there is any amount remaining; it is disbursed among the company members, shareholders, and top management. If you at any point are considering to shut down the business of your company, one important point to remember is that the process may vary from state to state. So, it is very essential to take legal assistance and advice from a business attorney.

Before taking the final decision, the top management and board of directors should conduct a meeting and discuss if this really is the last option. Many a time, there can be alternatives to dissolution; such as taking out a loan, adopting a new product strategy, selling shares, and similar others.

If the decision for dissolution is taken, the next step would be to approach the shareholders and ask for their suggestions, and an approval to move on with the procedure.

Consult a tax accountant and a lawyer, and complete the Internal Revenue Service (IRS) formalities. You will have to deactivate any accounts, licenses, and permits related to the company as a separate legal entity.

You should then inform the shareholders, employees, creditors, and other important entities about the dissolution. Obtain a record of all assets that the company possesses, make a list of creditors according to priority, work with the real estate appraiser and value all the possessions, sell all the property, and finally pay off the debt.

Along with the debt, you should also consider paying off the taxes. Remember that tax formalities differ in every state, and so you will need to have a professional guide you through this. If any amount remains, you may distribute it within the shareholders according to the dissolution guidelines or the number of shares one holds.

The final step would be to file the Articles of Dissolution at the appropriate state office.

This was a general procedure about dissolving a corporation. For obtaining detailed information, it is suggested that you take legal assistance from a company lawyer. Dissolution is a collective decision taken by the top management, board of directors, and the shareholders.