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.

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.

Ready to incorporate your business? Get Started Now

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.

Ready to incorporate your business? Get Started Now
How to Change From a Corporation to a Sole Proprietorship

References

Related articles

What Does Dissolved Mean for a Corporation?

A corporation is an independent legal entity, separate from its owners, who are known as shareholders. It is this independence that affords the shareholders limited liability for the debts of the company and enables them to easily transfer their shares in the business. But when a corporation decides to cease operations, or dissolve, it must undergo a process to terminate its independent legal status. Corporations are regulated under state law, so the dissolution process can vary. However, there are some general steps that all corporations must take.

How to Close Down a C-Corp

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.

How Does a Person Become Incorporated?

A corporation is an independent legal entity owned by shareholders, and may be incorporated by an individual. The shareholders are not personally liable for the corporation, which will continue to exist even if the shareholders change or pass away. State law regulates the formation of corporations and varies by state; however, there are some similarities.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Get an Article of Incorporation in Tennessee

In Tennessee, a new corporation's organizing document is called a "charter." It contains the company’s articles of ...

The Steps in Starting an S-Corp

An S corporation is simply an ordinary corporation that has elected to be taxed under Subchapter S of the Internal ...

How to Convert to S Corp From Sole Proprietor

A sole proprietor may benefit from converting to an S Corporation. While a sole proprietor is personally liable for ...

How to Dissolve a Corporation & Form a New One

If you are interested in forming a new corporation, you do not necessarily have to dissolve your existing corporation. ...

Browse by category
Ready to Begin? GET STARTED