How to Cancel an Incorporation

by John Cromwell

When a business incorporates, it becomes a distinct legal entity. The corporation’s liabilities are its own; its shareholders are generally not personally responsible for those obligations. The incorporation is also required to file its own tax returns. Due to its legal independence, cancelling corporate status requires filing documents with a number of organizations. Businesses incorporate under state law, so the specific steps for dissolving the organization will vary. Check the laws of the state where the business is incorporated for the exact process your corporation will have to follow.

Step 1

Vote on whether to terminate the corporation. Shareholders are required to approve major transactions such as cancelling an incorporation. You will probably need to call a special shareholder’s meeting for the vote. Your corporation's bylaws typically establish how many votes are required to cancel corporate status.

Step 2

Wind down the business activity. Corporations typically have ongoing responsibilities that must be completed before the corporation can be terminated. Pay all outstanding corporate liabilities with corporate funds and complete all outstanding business orders.

Step 3

File your final corporate tax return. The corporate tax return is Form 1120. Check the “final return” box in item E of the Form.

Step 4

Cancel your corporation’s Employer Identification Number (EIN). Send a letter stating your reasons for cancelling your EIN to Internal Revenue Service.

Step 5

File the appropriate documents to dissolve the corporation in the state where you incorporated. Comply with the corporate dissolution process of the state where you are incorporated. Generally, you must file articles of dissolution with the Secretary of State.

Step 6

Divide the remaining corporate assets among the shareholders. Be sure that all outstanding corporate liabilities and debts have been paid off first. The assets should be distributed based on the amount of stock owned by each shareholder.