What is Corporate Dissolution?

Mary McMahon
Mary McMahon

Corporate dissolution is a process in which an incorporated company is permanently closed for business. Closing such companies is not as simple as locking the front doors and hanging up a “closed” sign. There are a number of steps which must be taken to close the business in an orderly fashion when it is being closed down voluntarily. There may also be cases in which the government compels a corporate dissolution.

Businessman with a briefcase
Businessman with a briefcase

In the case of a voluntary corporate dissolution, the process starts with a vote among the board members. Depending on the corporate bylaws, the vote may need to be unanimous. If the company is publicly traded, the closure must also be put to a shareholder vote, giving people with an interest in the business an opportunity to vote on whether or not they wish to dissolve the corporation. If these votes pass and it is decided to close the business, the next steps can begin.

One critical part of a corporate dissolution is a notice to creditors informing them that the business is to be closed. The business cannot take on any more business debts at this time and it must discharge debts to creditors before it can close. This can be done out of the corporation's bank accounts, or from the proceeds of the sale of the company assets. Liquidation of the assets is also a part of the business closing, including sale of everything from file cabinets to real estate belonging to the corporation.

There are also usually tax requirements involved with corporate dissolution. The company needs to file final tax information including payroll taxes for employees, and provide contact information so that if there is a problem, the tax authorities will have someone to get in touch with about it. In addition, a company may be required to obtain a certificate showing that it is current on its taxes before it can be closed, to confirm that there is no outstanding tax liability.

The company may be required to file articles of dissolution with the same government agency which accepted the articles of incorporation. It may also need to publish announcements so that any people who believe themselves to be creditors can take action to recover their debt. Once all of these steps have been completed, the business is formally closed and any proceeds remaining from the liquidation of the business can be split among the owners.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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