Small businesses are the backbone of the U.S. economy. Each year, thousands of new businesses are created with the goal of achieving sustained success. However, starting a business does not mean that entity will remain active in perpetuity. In fact, for a variety of reasons, many businesses each year are closed and have to be dissolved.
If you find yourself in this situation, it is extremely important to take the necessary steps to properly dissolve the corporate entity. Why? Because if you fail to properly dissolve the corporation, you are exposing yourself to future liability, even years after the business has shuttered its doors.
Types of Corporate Dissolution
Corporate dissolution typically is done through either voluntarily dissolution or involuntarily dissolution. If you are voluntarily dissolving a company, the owner or shareholders need to file a some form of a notice of dissolution or notice of cancellation with the secretary of state of the state in which the company was formed. If the company also was registered a foreign corporation qualified to business in another state, you will also need to make appropriate filings to cancel such foreign qualification in order to stop future payment obligations to that state.
The corporate entity can also be dissolved involuntarily through government action when the business fails to pay outstanding taxes.
Liquidating the Assets
A key component to the dissolution process is for the company to sell any assets that are not being used as collateral for outstanding loans. Property used as collateral will need to be either be turned over to the institution holding the property as collateral or paid off and sold specifically to repay the debt. Speaking of debt, you should ensure all outstanding corporate debts are settled or paid off to the extent possible before dissolving the company.
Notify Interested Parties; Board and Shareholder Consent
Notice needs to be provided for all interested parties in the dissolution of the corporate entity. Why? Because a final notice provides all interested parties the chance to bring any relevant claims against the business before it is dissolved.
Examples of interested parties include:
- Any other interested entities in the business.
In addition, any form of dissolution will require consent of the board of directors and shareholders of the company. You will need to check the applicable laws of the state of your incorporation and your organizational documents to confirm what percentage approval is required.
File Articles of Dissolution with the State
The final step in the corporate dissolution process is filing the articles of dissolution or similar document depending on the type of entity and jurisdiction. This paperwork should be filed in the state in which you formed the business entity.
It is important not to skip this step since failing to file dissolution paperwork with the state government could potentially lead to legal liability for the owners or shareholders of the business. For example, if you do not file the dissolution paperwork, the government assumes the business is still active and in operation. As a result, the government will continue to expect, and pursue, the payment of annual taxes, along with the filing of an annual report. If you fail to pay the outstanding tax and do not file the requisite report, the government could impose significant fines, fees, and other penalties.
Have Questions About Dissolving a Corporate Entity? Consult with an Experienced Business Lawyer in Los Angeles Today
In order to properly dissolve a corporate entity, it is in your best interest to work with a reputable business lawyer such as the professionals at Hakim Law Group, for a successful outcome. Our team of business lawyers in Los Angeles are here to assist you throughout the dissolution process and can assist in drafting and filing the necessary legal documents to complete the dissolution. For further information or to schedule a consultation please contact HLG at 310.993.2203 or visit www.HakimLawGroup.com to learn more.