Corporation: Withdrawal Vs. Dissolution

By Elizabeth Rayne

A corporation is an independent business entity, formed under state law by filing articles of incorporation. The state where the corporation is originally formed is the business's home state or domicile. A corporation then has the option to do business in other states, but must register as a foreign entity in these states in order to do so. If a corporation wants to stop doing business in these other states, it may "withdraw" its business there. If it wants to stop doing business completely, it must "dissolve" in its home state.

A corporation is an independent business entity, formed under state law by filing articles of incorporation. The state where the corporation is originally formed is the business's home state or domicile. A corporation then has the option to do business in other states, but must register as a foreign entity in these states in order to do so. If a corporation wants to stop doing business in these other states, it may "withdraw" its business there. If it wants to stop doing business completely, it must "dissolve" in its home state.

Background

A corporation begins by registering in the state where the business has its headquarters. After that point, the corporation may decide to do business in other states. For every additional state, the corporation must register as a "foreign" or out-of-state entity. Corporations, by definition, have perpetual existence, meaning they will continue to exist even if shareholders, owners, or board members change or die. There is no limit on the duration of a corporation; therefore, it will cease to exist only if specific actions are taken by the company's board of directors. This means that a corporation must continue to comply with all the filing and tax requirements in every state it is registered in unless it files to withdraw from the state, or dissolves the company in its home state.

Ready to incorporate your business? Get Started Now

Withdrawal

When a corporation decides to no longer do business as a foreign entity in a particular state, it must "withdraw" its registration. This means that the corporation intends to stop doing business as a foreign entity, but it plans to continue operations in its home state. In this circumstance, the corporation must file a form, typically with the secretary of state, to notify the state that it is withdrawing its registration there. This form is often called a "certificate for withdrawal," or something similar. The corporation will file a final tax return in the state where it is withdrawing, as well as proof that all outstanding taxes have been paid.

Failure to Withdraw

Corporations are responsible for taxes and submitting any required reports in every state where they are registered to do business. If the corporation fails to effectively withdraw its registration, it will remain liable for filing and tax obligations in that state. Failure to do so will mean that the corporation is not in good standing. Corporations that are not in good standing in a particular state are not able to pursue lawsuits in court, are liable for civil penalties and fees to the state, and are prohibited from continuing to do any business in the state.

Dissolution

When a corporation wants to officially end its existence, it dissolves. A corporation will not do business in its home state or any other state following dissolution, and it must also withdraw from each state where it was registered as a foreign entity. The dissolution process involves filing articles of dissolution, typically with the secretary of state in the corporation's home state. Dissolution also involves liquidating the company, paying off debts, closing accounts, filing final tax returns at the state and federal level, and canceling all licenses and permits for the corporation.

Ready to incorporate your business? Get Started Now
Terminating a New York S Corp

References

Related articles

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 Re-Open a Dissolved Company

In theory, corporations can exist forever, but they can also go out of business or be dissolved for other reasons. For example, you and the other corporate shareholders may dissolve one corporation to pursue another business venture; however, you can typically recreate your original corporation if you decide to go back to it. Corporations are independent legal entities formed under state law, and each state has its own laws that control the ability of dissolved corporations to reactivate.

What Is a Domestic Corporation?

All corporations are considered a domestic corporation in the state where the corporation is formed. For example, a corporation formed under South Carolina law is considered a domestic corporation in South Carolina. This same corporation would be considered a foreign corporation in all other states. A business owner can choose in which state to domesticate his corporation.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Change the State of Incorporation

Corporations have several options when it comes to expanding to new locations or relocating the home base. The state ...

Where Is a Corporation Domiciled?

One of the biggest decisions when starting a business is to decide where the corporation will be incorporated. This ...

How to Transfer a C-Corporation From Another State to Florida

Like some other business types, C corporations, or corporations that are taxed separately from their owners, must ...

Does a Single Member LLC Need to Register to Do Business in Another State?

Organizing your business as an limited liability company provides the owners, known as members, with liability ...

Browse by category
Ready to Begin? GET STARTED