What Is a Corporate Dissolution Agreement?

Save

You can't dissolve a corporation by simply locking the doors. You must secure the consent of shareholders, finalize tax matters, notify state authorities, satisfy creditors, and distribute residual assets to shareholders. All of these matters should be covered in a corporate dissolution agreement. The details of the dissolution process differ slightly from state to state.

Consent

  • The laws of the various states impose different rules on the consent required to voluntarily dissolve a corporation. Some require shareholders representing a simple majority of issued and outstanding shares to consent, while others require a supermajority -- 75 percent of issued and outstanding shares, for example. Corporate bylaws may raise the minimum consent required, as long as this is permitted under state law. If so, the standard set by corporate bylaws must be complied with rather than the state law standard. Corporate bylaws may not lower the minimum required consent, however. A corporate dissolution should be signed by all consenting shareholders.

Tax Matters

  • Corporations that dissolve must first settle all state, local and federal taxes. The IRS must be notified using Form 966, and states require various forms of notification. Some states do not allow dissolution until they issue a tax clearance certificate. The agreement should state the amount of these taxes and appoint a representative to take responsibility for handling tax matters. The representative should sign the agreement even if he is neither a shareholder nor a director.

Articles of Dissolution

  • The corporation must draft Articles of Dissolution, which must be approved by the shareholders and the board of directors. The Articles of Dissolution should be attached to the dissolution agreement as an appendix, and the body of the agreement should state that the Articles of Dissolution are an integral part of the dissolution agreement.

Winding Up

  • The dissolution agreement should list corporate creditors along with their priority claims to corporate assets. These priorities are set by state law. The agreement should state how assets are to be liquidated, who is responsible for liquidating them, and which creditor gets how much. Only after creditors have been satisfied can the corporation distribute any remaining assets to shareholders. The dissolution agreement should specify which shareholder is entitled to how much. Normally, remaining assets are distributed in proportion to each shareholder's investment in the corporation. The agreement should also state who is responsible for filing the notice of termination required to be filed with state authorities.

References

  • Photo Credit Jupiterimages/BananaStock/Getty Images
Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!