Business dissolution means the end of life for the company, and can happen for a variety of reasons. Bankruptcy, retirement, or change of career are common instances that a corporation may dissolve. The state may also force the corporation to dissolve (administrative dissolution) if taxes weren't paid, or an annual report was not submitted.
How Is a Business Dissolved?
If the company was a sole proprietorship, or all partners are in agreement, the dissolution is fairly straightforward. Paperwork must be filed in the state or locality where the business is located. In a sole proprietorship, if the owner dies, the assets become part of his or her estate. If it’s a partnership, one partner can buyout the other.
In a corporation, the shareholders must vote to dissolve the corporation. After a vote of dissolution, the state has the authority to allow the company to cease to exist. As in a sole proprietorship, if a shareholder dies, her assets become part of her estate.
Since owners are responsible for any fees, taxes, and liabilities a the company may have until dissolution, consulting an attorney before any steps are taken can prevent issues from developing in the future.
What Can I Do to Prepare for a Business Dissolution?
In preparation for a business dissolution, there are several steps you can take to protect yourself, here are just a few:
- Notify the IRS, state and local tax agencies;
- Cancel business licenses;
- Notify creditors (insurers, lenders, vendors, service providers, and suppliers);
- Notify your landlord if you are leasing your company’s premises;
- Collect any debts owed to the company; and
- Sell company assets (equipment, furniture, property, etc.).
Creating a checklist and following through on what you need to do prior to the dissolution of your company can save you a lot of stress, and possibly, money.
Do I Need to Consult a Lawyer for My Business Dissolution?
There are some complexities in dissolving a corporation that an experienced business attorney can walk you through. Whether it’s filing with the state, dealing with liabilities, or protecting your own assets, a qualified lawyer can assist you and help make the process smoother and more streamlined.