How to Dissolve a Corporation & Go Back to Sole Proprietorship
Dissolving a corporation is not as simple as closing its offices and walking out the door. Shareholders must consent, government forms must be filed, assets must be liquidated, and debts must be paid. Although this process should not be attempted without the assistance of an attorney at some point, a basic understanding of the process will help you to dissolve your corporation without undue difficulty.
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Instructions
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Draft a resolution authorizing the dissolution of the corporation, as well as articles of dissolution. You will need to appoint an agent to oversee the dissolution of the corporation for a certain period (set by state law) after the corporation dissolves.
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Prepare a board of directors resolution authorizing the dissolution of the corporation. Some states require a two-thirds majority to pass such a resolution.
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Prepare a shareholders' resolution authorizing the dissolution of the corporation. Some states require the consent of shareholders representing two-thirds of all issued and outstanding shares to pass such a resolution.
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File Form 966 with the IRS within 30 days of the passage of the shareholders' resolution. Form 966 should be sent to the IRS Service Center where the corporation's tax returns are filed.
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Cancel all permits and licenses that are issued in the name of the corporation (such as a state business license).
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Notify corporate creditors of the impending dissolution and ask them to submit written claims for payment. Settle all claims, or deposit sufficient funds in the care of the corporate agent in charge of dissolution that are sufficient to settle all anticipated claims.
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Purchase all corporate assets that you wish to use for your sole proprietorship. Distribute the rest to shareholders in proportion to their ownership interests, or sell them to interested parties and distribute the proceeds to shareholders.
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Prepare and file articles of dissolution with the secretary of state where the corporation is organized.
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Re-apply for all corporate permits and licenses in your own name.
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Tips & Warnings
If you wish to dissolve your corporation because of high corporate taxes, you should consider filing IRS Form 2553 to be taxed as an "S corporation." S corporations are exempt from federal corporate income tax, except on passive income.
The dissolution of a corporation can have unanticipated tax consequences for shareholders. Contact an accountant or a tax lawyer with the details of your particular situation.
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