What Does Dissolved Mean for a Corporation?

By John Cromwell

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.

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.

Shareholder Vote

The dissolution process begins by getting the shareholders to approve the termination of the corporation. Normally, the board of directors discusses and proposes a resolution for dissolution. If the board agrees on dissolving, it presents the resolution to the corporation’s shareholders for a vote. In some states, all that is required for the shareholders to pass the resolution is a simple majority, while in other states, a two-thirds majority is necessary.

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Wrapping Up Business

After the shareholders agree to terminate the corporation, the entity does not instantaneously stop. Most states require that the corporation “wrap-up” its business. The corporation is required to notify all corporate creditors of the dissolution. This is to ensure that all corporate liabilities are paid prior to the termination of the business. The corporation is also required to complete all its outstanding contracts regarding sales of its goods and service, but it is not allowed to enter into new contracts. The winding-up process generally concludes with the corporation gathering and selling all the assets that it does not intend to distribute to its shareholders.

State Filings

The articles of dissolution is document that a terminating corporation must file with the state in which it was originally formed. The articles formally terminate the corporation. The articles should describe how the corporation will distribute what remains of its assets to its outstanding shareholders. The articles are generally filed with the secretary of state.

Distributing Assets

The corporation’s remaining assets are distributed to the shareholders based on how many shares of the corporation they owned. For example, if a person owned 25 percent of the outstanding stock, he would get 25 percent of the remaining corporate assets. The corporation must file Form 1099-DIV with the IRS and its former shareholders to report the distributions.

Tax Implications

The dissolved corporation will also need to file its final tax return. When the corporation files its final return, it should detail the last of the financial activity. Also, the corporation must check the “final return” box in Item E of the return. The corporation should also cancel its Employer Identification Number. The corporation does this by sending a letter to the IRS stating that it is dissolving and it no longer requires an EIN.

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The Dissolution of an S Corp

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How to Close a Corporation With the IRS

A corporation is a business entity that is legally distinct from its shareholders. This means that, in addition to the shareholders not being personally responsible for the business’s liabilities, the corporation is a separate taxable entity. When a corporation decides to shut down, it must file several documents with the IRS and settle any final tax bills before it can dissolve.

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.

Closing an S Corporation in Georgia

S corporations are business entities that are closely held by a small number of shareholders. All corporations must follow the same dissolution procedures, but an S corporation is typically less expensive to dissolve than a C corporation because any gains on the distribution of corporate assets are taxed only once in an S corporation – at the shareholder level. Because Georgia corporations must register with the Georgia Secretary of State, the corporation must also formally file appropriate dissolution paperwork. If your corporation has not issued shares and has not “commenced business,” you can simply file Articles of Dissolution with the Georgia Secretary of State. Otherwise, you must file both an Intent to Dissolve and Articles of Dissolution.

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