How to Close Down a C-Corp

By Larissa Bodniowycz, J.D.

How to Close Down a C-Corp

By Larissa Bodniowycz, J.D.

If you plan to leave your business, you have a number of options. You can sell your business to someone else, transfer ownership to family or friends, or close it down completely. Before deciding which option is best for you, consider the reasons for no longer wanting to be part of the business.

Businesspeople talk at table

Closing down your business is not as easy as locking the doors and ceasing operations. You need to tie up loose ends. Most notably, to avoid further legal liability, you must terminate your C corporation formally. Follow these steps to properly close your C corp.

1. Obtain board of directors and shareholder approval for dissolution.

When you originally formed your corporation, you filed articles of incorporation or a similar document with the Secretary of State and prepared corporate bylaws. These documents and state law govern what an approval of dissolution requires. In most cases, the board must initially vote for dissolution; then, when presented with the proposal to dissolve, the shareholders must approve the dissolution with a majority vote. You must record both votes in writing.

2. Notify creditors of your dissolution.

A C corporation's shareholders are not the only people with an interest in its dissolution. You must also notify any creditors of your decision to close shop. Your notice should inform creditors of the deadline to submit claims and make it clear that they cannot submit claims after the deadline. State law usually dictates the deadline you can give creditors for submitting outstanding claims.

3. Pay off your debts, terminate contracts, and distribute your remaining assets.

Before you close for good, you must pay off any outstanding debts you owe to creditors. Pay off loans and invoices, issue refunds if you cannot complete orders, and satisfy any other outstanding obligations. You should also close any company bank accounts and collect any accounts receivable. You need to wrap up any ongoing contracts, leases, deliveries, or services. Additionally, if you have any licenses or permits, you should cancel all of those to avoid penalties and taxes.

After you pay off debts, distribute final payroll, submit final reports and tax forms, and liquidate your remaining inventory or assets, you can distribute any remaining assets to the shareholders. Submit the appropriate tax paperwork required to report this distribution. Your bylaws determine how to distribute the money; the process typically correlates with each shareholder's ownership percentage.

4. File your articles of dissolution.

To terminate your corporation formally, you must file articles of dissolution or a similar document with the state agency where you filed your articles of incorporation—usually the Secretary of State. Most states offer online and mail-in options for submitting the articles of dissolution. If you registered your corporation to do business in other states, you must file paperwork acknowledging your dissolution in those states as well. Filing the articles of dissolution is not optional. If you simply stop operating your business, the state will continue to expect you to pay taxes, file reports, and pay fees.

To relieve stress and avoid mistakes that can cost you time and money, follow these steps and ensure that you have followed all requirements for properly shutting down your C corporation.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.