How to Dissolve a Chapter S Corporation


An S corporation is a special corporation that allows the owners of the company to pass their share of company profits to the shareholders' personal income tax return. To dissolve an S corporation, the Internal Revenue Service and the state where the S corporation is formed must be notified that the company is closing. An S corporation must be properly terminated to ensure that the company does not incur additional fees and tax penalties.

Conduct a company meeting composed of the company's board of directors. A proposal to dissolve the company must be introduced and voted on by the S corporation's board of directors. Depending on the state where the S corporation is organized, two-thirds of the S corporation's board of directors must agree to dissolve the company. In some states, the majority of the S corporation's board members are required to approve the company's dissolution.

Call a meeting of the S corporation's shareholders. The majority of the company's shareholders must agree to dissolve an S corporation. Some states may require at least two-thirds of the company's shareholders to agree on dissolving the company. Minutes from the shareholder and board of directors meetings must be recorded in the S corporation's record book. This information acts as proof that the board members and shareholders voted to dissolve the company.

File Form 966 with the IRS. This is a corporate dissolution and liquidation form that may be printed from the IRS website. Provide information such as the legal name of the business and the date when the business will officially dissolve. An S corporation has up to 30 days, from the time the board of directors approves the company's dissolution, to file Form 966 with the IRS.

Notify the S corporation's customers, employees and creditors that the company is dissolving. Provide creditors with information regarding where claims against the company can be sent. Give the creditors a deadline for filing claims against the company and a list of information that must be included in the creditor's claim. In most cases, creditors of an S corporation are given 120 days to file a claim against the company.

Reject or accept claims from the S corporation's creditors. S corporations must notify creditors in writing as to why a claim is being rejected. Satisfactory payment arrangements must be made to satisfy all accepted claims. In some instances, an S corporation may be required to liquidate company assets to satisfy all claims against the corporation. Furthermore, an S corporation must pay outstanding fees and taxes to the state where the business is organized. Complete a final tax return. Check the appropriate box on the tax return to indicate that this will be the final tax return for the S corporation.

File articles of dissolution with the S corporation's state of incorporation. Supply information such as the legal name and address of the company, and the exact date of dissolution. Certain states may require an S corporation to be clear of any fees or tax obligations before filing articles of dissolution. Articles of dissolution must be submitted to the secretary of state or state department where the corporation was organized. The fee to file articles of dissolution will vary from state to state.

Distribute the S corporation's remaining assets to the shareholders. All claims against the S corporation must be paid prior to distributing assets to the shareholders. Shareholders will receive assets from the company in accordance with their ownership interest in the business. All final distributions made to the shareholders must be reported to the IRS by the company and claimed on the shareholders' personal income tax return.

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