What is Business Dissolution?

Malcolm Tatum

Business dissolution is a term that is often employed in one of several different situations. The term is sometimes used to describe the termination of a working relationship between two companies, especially in situations where a contract governed that relationship. At other times, business dissolution refers to the dismantling of a corporation either as part of an acquisition by another company or because the corporation is choosing to shut down permanently. In either situation, there are typically specific tasks that must take place before the dissolution is considered complete.

Businessman with a briefcase
Businessman with a briefcase

As it relates to the termination of a contract between two parties, the business dissolution involves identifying the reasons for ending that working relationship. In order for that termination to be considered legal, it is often necessary for one party to identify specific covenants within the text of the contract that were not honored by the other party. Depending on the circumstances surrounding the business dissolution, legal documents may be necessary to formally declare the contract terminated and the business relationship between the two entities formally ended.

Corporate or business dissolution can also refer to the end of a company’s life. This may occur because the business is ceasing operations for any number of reasons. The business owner may have passed away and survivors have no desire to continue the business, or the company may be losing market share and a decision is made to end operations before the company is no longer profitable. In some cases, the corporate dissolution is due to an acquisition in which the new owners have no intention of continue to market under the name of the acquired company. Since laws regarding the official demise of an incorporated business vary somewhat from one jurisdiction to another, it is important to work with legal counsel and identify any processes that must be followed in order to efficiently manage the dissolution.

With the dissolution of a company, it is often required for documents known as articles of dissolution to be filed with the jurisdiction where the company was originally incorporated. This action often helps to pave the way for the final assessment of taxes due, and also brings to the ability of business deals to be conducted under the name of the dissolving company. Articles of dissolution typically include information regarding the nature and distribution of assets owned by the business, as well as including a specific date that the business dissolution is to be considered complete.

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