How to Dissolve My Corporation & Divide Assets Among Shareholders
There are two sources of law that define the corporate-dissolution process. The first is the incorporating state’s corporate code. While each state has its own code, the Model Business Corporation Act has been adopted by 32 states and is the best basis to use when talking about corporate law in general. The final source is the U.S. tax code and IRS regulation regarding how to end the business for tax purposes.
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Instructions
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Agree to dissolve the corporation based upon shareholder vote. To dissolve a corporation, a majority of shareholders must approve a recommendation of the corporation’s board of directors, unless the corporation’s articles of incorporation require a greater margin.
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File articles of dissolution with the incorporating state’s Secretary of State office. The articles must contain the name of the corporation, the date dissolution was approved and a statement that the agreement to dissolve was approved by the shareholders in compliance with state law and the corporation’s articles of incorporation.
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Terminate and wrap up all corporate business. The first step in closing the corporation is stopping production, informing suppliers and customers that you are going out of business, and informing your workforce. In addition, the corporation has the responsibility to collect all of its assets and outstanding monies owed, pay off its debts and sell property that will not be distributed to shareholders.
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Publish a notification stating it is closing and request that those with claims present them to the business within three years of the publication. The notice must be published in a newspaper in the county where the principal office is located and describe how a claim may be submitted.
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File your final corporate tax returns. Normal corporations use Form 1120, and S corporations use Form 1120-S. For Form 1120, complete the return, and on Item E, check the "Final Return" box. For Form 1120 –S, check the "Final Return" box on Item H and the "Final Return" box on each K-1.
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Distribute assets based on the number of shares each stockholder owns. Complete this step once all claims have been settled and the final tax returns filed. Divide the value of the remaining assets after the settlement of all claims by the number of outstanding shares to determine the per-share value. How much each owner receives is based on how many shares he owns.
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Tips & Warnings
When dissolving a corporation, consult with an attorney to ensure that all state and tax requirements are met. While every effort has been taken to ensure that this article’s completeness and accuracy, it is not intended to be legal advice.
