Any number of reasons can lead to a decision to dissolve a corporation, the most common being that the business of the corporation is ending due to:
- Death of a principle and there is no one to continue the business
- Business failure or bankruptcy
- Legal issues or any other reason making staying in business inviable
It’s important to properly dissolve a corporation rather than just ignoring it and letting the state suspend the corporation due to failure to file and pay taxes and fees. Just walking away can create a fresh set of problems.
There are several steps to follow to dissolve a corporation in California. It’s always a good idea to rely on an attorney experienced in corporate law, such as the San Luis Obispo attorneys at Toews Law Group, Inc.
The first step in dissolving your corporation is to stop actively conducting corporate business. Even though the corporation has ceased doing business and has no income, it continues as a legal entity until it is officially dissolved. Failure to comply with the dissolution process may result in fines and penalties.
The steps to dissolve a corporation are:
- Board of Directors authorizes dissolution
- File the Certificate of Dissolution
- Advise appropriate federal and state agencies of the dissolution: The Internal Revenue Service, Franchise Tax Board need to be advised of the dissolution as well as any other agencies that issue permits and licenses.
Before filing the Certificate of Dissolution, the following need to be completed:
- Sell, donate, or distribute inventory, equipment, real property and other assets: The proceeds from sales are deposited in the corporate accounts to be distributed and paid out to settle debts, satisfy stockholder obligations, or otherwise distributed.
- Pay employees and creditors: Failing to pay employees all wages, accrued time, profit sharing and other amounts due can result in penalties and other legal actions against principle officers of the corporation.
- Close accounts and lines of credit once all debts and claims against the corporation have been paid or otherwise settled.
- Notify appropriate licensing agencies: Notify local agencies that issue business licenses, local permits and fictitious business names.
Hold a formal Board of Directors meeting and vote for dissolution. Make a formal motion to dissolve the corporation and take an official vote. Record the meeting activities in the corporate minutes.
The majority of any stockholders also need to vote for dissolution and sign a written agreement approving the dissolution.
File the Certificate of Dissolution
The Certificate of Dissolution needs to be filed with the California Secretary of State. Forms can be downloaded from the Secretary of State website, but it can be a good idea to work with the corporate law attorneys at San Luis Obispo’s Toews Law Group, Inc. to be sure everything is completed and filed correctly.
Certain matters need to be stated in the certificate such as:
- Tax returns have been filed and tax liabilities have been satisfied or will be satisfied and how
- Debts and liabilities have been satisfied
- No new shares of stock have been issued and payments by investors have been returned
- The Board of Directors and stockholders have approved the dissolution
- Assets have been distributed properly, including the proceeds from the sale of assets
- No new assets have been acquired
Work with the experts
Every step to dissolving a corporation is important and overlooking a step, or not being sure that each task is completed satisfactorily can result in complications, a delay in the dissolution, or fines and penalties. The attorneys at San Luis Obispo’s Toews Law Group can help make sure that:
- Every step is completed properly
- All the paperwork is filed with the Secretary of State
- Time sensitive matters are promptly handled