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.

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.

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.

Ready to incorporate your business? Get Started Now

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

References

Related articles

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.

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.

The Dissolution of an S Corp

An S corporation is a corporation that is subject to special IRS taxation rules. Except for certain taxation issues, the procedure for dissolving an S corporation is the same as the procedure for dissolving any other corporation. However, this procedure varies depending on the state of incorporation.

LLCs, Corporations, Patents, Attorney Help Incorporation

Related articles

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 ...

Can a Corporation Stay Inactive or Does It Have to Be Dissolved?

In most states, corporations have an obligation to remain in good standing and avoid penalties, whether the company is ...

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 ...

How to Dissolve a Nevada C-Corporation

If you're planning on shutting down a Nevada corporation, state law allows for fairly simple filing and notice ...

Browse by category
Ready to Begin? GET STARTED