How to Close Down a C-Corp

By Heather Frances J.D.

A corporation, also referred to as a C corp, is an independent legal entity formed when an incorporator files the articles of incorporation, or similar document, with the state. Corporations typically have perpetual existence, which means they continue to exist until they are officially dissolved. While the exact procedure for closing a C corp can vary among states, some of the steps involved in closing a corporation are the same across all states.

A corporation, also referred to as a C corp, is an independent legal entity formed when an incorporator files the articles of incorporation, or similar document, with the state. Corporations typically have perpetual existence, which means they continue to exist until they are officially dissolved. While the exact procedure for closing a C corp can vary among states, some of the steps involved in closing a corporation are the same across all states.

Authorization to Terminate

Corporations are typically governed by a board of directors, which makes decisions on behalf of the corporation, including the decision to terminate the C corp’s existence. The board must authorize a dissolution as per the corporation's bylaws, which are the rules a corporation adopts to regulate its own affairs, as well as the state's dissolution statute. For example, a C corp's bylaws or state dissolution statute may require a majority vote of the board or shareholders to terminate a C corp.

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Articles of Dissolution

Though state paperwork requirements can vary, corporations typically must file articles of dissolution, or a similar document, with their state’s business registration authority, often the secretary of state, which is the same registration authority where the corporation filed its articles of incorporation. If the corporation operates in more than one state, it might have to file notices in each state where it operates. If a C corp is in possession of business licenses, it might also have to file paperwork to terminate those as well.

Winding Up

Before a corporation can cease to exist, it must wind up its affairs, meaning it must pay all outstanding obligations and debts, including loans to the corporation by shareholders. The corporation should also set aside money for any claims that might arise after the corporation dissolves. The C corp must also take steps to close bank accounts and terminate leases or contracts. Federal and state taxes continue to accrue until the date of dissolution, so the corporation must file final tax forms, including those for payroll and sales taxes as well as income tax returns, and indicate the corporation is terminating.

Notice to Creditors

State law may require a corporation to provide written notice of its dissolution to known creditors, allowing them an opportunity to present their claims against corporate assets by a specific date. Some states might allow a corporation to publish a public notice to unknown creditors, advising them to file their claims within a specific time frame or forfeit the right to make a claim.

Distribution

If a C corp has any remaining assets after it pays its creditors and state approves its dissolution, it must distribute them as set forth in the corporation’s bylaws or by state law. Typically, a corporation must distribute remaining assets to its shareholders in proportion to the number of shares each shareholder owns. The C corp must also file the appropriate tax paperwork in which it reports the distributions made to shareholders.

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The Dissolution of an S Corp

References

Related articles

Closing an S Corporation in Georgia

S corporations are business entities that are closely held by a small number of shareholders. All corporations must follow the same dissolution procedures, but an S corporation is typically less expensive to dissolve than a C corporation because any gains on the distribution of corporate assets are taxed only once in an S corporation – at the shareholder level. Because Georgia corporations must register with the Georgia Secretary of State, the corporation must also formally file appropriate dissolution paperwork. If your corporation has not issued shares and has not “commenced business,” you can simply file Articles of Dissolution with the Georgia Secretary of State. Otherwise, you must file both an Intent to Dissolve and Articles of Dissolution.

Laws About Closing a C Corporation in Ohio

The business services section of the website for the Ohio Secretary of State provides a wealth of step-by-step instructions for starting up a corporation, but relatively little information about closing one down. Like most states, Ohio apparently figures that existing business owners are savvy enough to figure out how to close down operations with limited guidance. To determine the proper way to close down a corporation in Ohio and ensure that the shareholders are not held personally liable for obligations that arise after the doors close, the corporation must refer directly to the dissolution and winding up provisions of the state's corporation statute.

How to Dissolve a Corporation in Kentucky

A corporation has a perpetual existence. It continues to exist and incur obligations unless an authorized person officially dissolves it by filing paperwork with the same government office that authorized its formation. Simply closing the corporation's doors and ceasing operations is not sufficient to dissolve a corporation in Kentucky. Corporations organized under Kentucky law have two options for dissolution that depend on whether the corporation has or has not commenced business activities. In both instances, an authorized party must file articles of dissolution with the secretary of state and follow the winding up procedures for corporations that are outlined in the Kentucky Revised Statutes.

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