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6 easy steps to dissolve a company

6 easy steps to dissolve a company

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There is more to dissolving a company than just stopping operations. You must formally complete the process by resolving business and financial matters and filing dissolution and tax documents.

Failure to do so may result in penalties and obligations. In this post, we will guide you through the process step by step.

Why is it worth dissolving a company?

Unforeseen events, financial difficulties and inability to get started, among other factors, can force you to make the difficult decision to dissolve a company. No matter how hard it is, it is better to dissolve the business than to continue as an inactive company.

The reason is that even if you stop operating, a company legally remains a business entity. This means that there are state and federal legal requirements that the company must meet unless it is legally dissolved.

These include filing annual reports and paying corporate taxes. There may also be additional requirements depending on the state in which the business was formed. Completion of these actions means that you remain in good standing with the state. However, if the company becomes inactive and does not maintain its good status, there may be sanctions.

Furthermore, if the state is forced to dissolve the business administratively, its owners may be liable for any outstanding debts and other obligations. There may also be sanctions on unpaid taxes and interest.

If you have to close your doors, it is better to dissolve the business legally than to let the aforementioned costs build up.

The investment needed to dissolve a company

Many factors can affect the time it takes to dissolve a company. These include company size, industry and local regulations.

Submission of articles on dissolution, ie. formalization of the procedure with the state can only take days to complete. But there are additional necessary steps involved in dissolving a company. Aspects such as Liquidation of assets and filing of all the correct tax documents are likely to take considerably longer.

On the financial side of things, there is a small fee you have to pay to the state to file dissolution articles. The price depends on the state and ranges from $ 15 to $ 100 +. Visit the website of the Secretary of State or another relevant agency for more information.

The other expense you may need to consider is attorney fees. If there is no one with the legal know-how to take care of the dissolution of the company, you can seek outside help.

Similarly, you may decide to hire a lawyer if you are concerned about compliance issues or other mistakes in the process. But the problem is that lawyers usually charge over $ 100 an hour. An alternative is to make use of an online legal service that is more affordable.

Rocket Lawyer, for example, is a service that specializes in legal documentation. For $ 39.99 a month, you can access a variety of legal document templates and professional lawyers that you can ask questions. You also get a free 30-minute consultation with an attorney on any new legal issues.

Rocket Lawyer also offers a standalone service for dissolution articles. They will file all the required forms to the state on your behalf and bind any loose ends, such as ensuring that associates are notified and assets have been distributed.

6 steps to dissolve a company

There is an official way to dissolve a company. This includes taking care of certain financial and business issues as well as archiving dissolution articles.

Make sure you adhere to proper protocols by reviewing company bylaws, government regulations, and following these steps:

# 1 – Seek approval from the board of directors and shareholders

First hold a meeting with the board. The board of directors must approve a decision to dissolve the company before you can proceed to the next step.

The Board of Directors may propose a dissolution plan. This legal document contains agreements between directors and shareholders on the dissolution process and distribution of assets. It shall enter into force when the necessary permits have been obtained.

Next, shareholders must vote on the resolution resolution. A majority for approval means that the initiative can continue. A majority make up two-thirds of shareholders in most states, but this varies from state to state.

Once the consent of directors and shareholders is obtained, you can proceed with a voluntary dissolution. Note that you must comply with state laws and corporate bylaws throughout the voting process.

In addition, you should document the entire process in the company record book. And there must be a written dissolution agreement signed by the shareholders before you can file dissolution articles.

# 2 – File Resolution Articles

To officially dissolve the company, you must file dissolution articles with the Secretary of State or a similar office. In some states, the agency may be called the incorporation agency, the corporation agency, or the corporation commission.

Find and follow the guidelines for the procedure in your state. A simple Google search should take you to the correct department, e.g. Search for “file resolution articles in Illinois”.

It is also worth noting that if the company operates across multiple states, you must also file paperwork in the other states. Otherwise, you may be responsible for annual reports, fees, and so on in each state.

Depending on the state, you may need to complete the relevant forms in person, online or by mail. At this time, you will also need to submit the fee for submitting dissolution articles.

Sometimes known as the dissolution certificate, the document usually requires only some basic information, including the name and address of the company, the date of the vote, the number of votes for and against whether assets have been issued and the date of execution.

# 3 – Quit taxes

When you dissolve the business, non-compliance with the proper tax procedures can end in legal issues and penalties. If there are unpaid tax debts, the government can seize assets against the payments, penalties and interest. You can also be held legally liable if you try to distribute assets to avoid paying final taxes. Be sure to follow the protocol carefully.

There are a variety of forms you need to fill out to complete taxation. So keep in mind that legal advice or the help of an accountant can be especially helpful here.

First, notify the IRS by filing Form 966, which covers the company’s dissolution and liquidation. Then you must file a final tax return for the year the company closes. Select the End entry field on your tax return form.

Note that there are different tax return forms for C companies and S companies. You may also need to file the IRS form covering the sale of commercial real estate.

Next, take care of the taxes that pertain to employees. You must report and pay your share and employees’ portions of the final federal tax taxes, including income tax, social security, unemployment, and medication. There is another form to report and pay taxes for contract workers.

Finally, cancel your employer identification number (EIN) and close your IRS business account. You can do this by sending a letter to the IRS containing the company name, address and EIN, along with the reason for closing the account, ie. resolution.

In some states, you must obtain a tax clearance certificate from the IRS before submitting dissolution articles. This certificate proves that all tax returns and payments have been completed.

# 4 – Notify Creditors

You must notify all creditors of the company’s dissolution and the time period they have to claim any outstanding debt. This also serves as a message that you can not incur additional debt from the creditors.

You can do this by sending creditors and relevant creditors a notice in the mail. Be sure to include the address to which creditors should send their claims and the information to be included in the claim.

The time frame within which creditors must make claims depends on the state, but is usually around three years. If creditors fail to make claims at that time, you may be able to completely reject their claim. It is a good idea to seek legal advice on such issues.

When you receive claims, the company can accept and pay claims or dispute them. If you dispute a claim, the creditor can sue to recover the debt. However, you may be able to reach an agreement with creditors where you pay a small amount, for example 80% of the debt. This would mean that you can avoid lawsuits, which can be costly and lengthy.

If the company fails to pay its debts, but rather distributes funds to the shareholders, the shareholders may be personally liable to creditors. So you have to settle claims before allocating assets to the shareholders.

# 5 – Cash and distribute assets

Any business assets that remain after claims with creditors have been wound up should be liquidated for distribution to shareholders.

This means selling assets, such as business equipment, real estate and vehicles for cash. There may even be intangible assets you can liquidate, such as contracts and intellectual property.

There are several ways you can liquidate assets. For example, you can find suitable buyers through your existing network of contacts. Or you can put assets up for auction or hold a discount sale, etc.

You just have to make sure that you can prove that the board has done everything it can to get the highest values ​​for assets. So make sure to keep good records of the liquidation process.

The way in which the assets are to be distributed should be outlined in the company’s articles of association. Usually, the percentage of assets a shareholder receives corresponds to the amount of shares they own.

However, companies sometimes have different stock classes. In this case, look at the company’s articles of association to ensure that each shareholder gets the correct distribution of the remaining assets.

# 6 – End operations

If you have not already done so, complete all business questions. At this time, you will not be able to conduct business other than that which is necessary to wind up the business.

There are a number of loose ends you need to tie. This includes fulfillment of any remaining contractual obligations and then termination of contracts with customers. You may also need to collect any outstanding receivables.

You must also take care of any obligations to the employees, such as benefits, severance pay and the provision of appropriate paperwork.

You must notify suppliers and customers that the company is closing. You may want to do this by e.g. To publish a notice in a local newspaper.

In addition, you may need to terminate licenses or licenses for the state in which you formed the company, as well as any other state in which you operated.

In addition, you may need to withdraw from leases on commercial properties. And you also need to make sure that you balance the books so that you can close the company’s bank accounts and service accounts.

Next step

As you have seen, the dissolution of a company is a somewhat complex process in several steps, governed by different laws and regulations. Therefore, if something is still unclear to you or you are worried, you may make mistakes in the process, then it is a good idea to consult with a legal service next time.

When you dissolve a company voluntarily, it no longer exists as a legal entity. You have archived the correct documentation, distributed assets and closed down the company. There is nothing else to do with the dissolution.

If you want to return to the business, you need to form a new company that you can do with the help of online legal providers. There are many steps involved in the process, including filing new bylaws. And here’s a guide to the best business accounts to consider when starting your next venture.

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