How to Close Down a C-Corp

by Heather Frances J.D. Google
A corporation cannot simply shut down operations without taking certain steps first.

A corporation cannot simply shut down operations without taking certain steps first.

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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.

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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.

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.