When Can a Corporation Be Dissolved?

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Reasons for Dissolution

A state may dissolve a corporation for: not filing reports or paying taxes, fraud, exceeding authority, not appointing an agent, or not notifying of address change.

Dissolution Process

To dissolve, shareholders with 50% of voting power must vote for it. The board commonly calls a meeting and submits a dissolution resolution. The first step is obtaining required permissions, often outlined in bylaws. Then shareholders vote for or against, usually requiring a simple majority. The board develops a dissolution plan once approved.

Dissolving formally involves resolving affairs and filing paperwork. First, hold votes and record minutes. File articles of dissolution. Get legal help to file state documents.

Types of Dissolution

There are voluntary, involuntary, and judicial dissolution.

  • Voluntary requires shareholder approval.
  • Involuntary happens upon not paying taxes.
  • Judicial is by lawsuit.

Shareholders’ approval is required for voluntary dissolution. For involuntary dissolution, it is the result of not paying taxes. Judicial dissolution occurs through a lawsuit.

Steps for Dissolving a Corporation

Steps include:

  1. Dissolve structure and get approval
  2. File articles
  3. Call board meeting
  4. Distribute assets
  5. Notify state agencies

Get legal assistance as requirements vary by state.

International Perspective: Spain

In the case of Spain, dissolution is a formal procedure that must comply with certain stages specified by the Capital Companies Law and which must be registered in the Mercantile Registry (in the “Official Gazette of the Mercantile Registry” (BORME)).

Ways to dissolve the company:

  1. Transfer of ownership: Purchase and sale of the company
  2. Liquidation
  3. Bankruptcy

Documentation and Legal Requirements

Proper documentation of the resolution and the shareholder vote should be maintained and recorded in the corporate record book. Submit dissolution certificate to the state. Upon obtaining the requisite approval, it is crucial to promptly file the necessary paperwork with the state where the corporation or LLC was originally formed.

In cases where the company was authorized to operate in other states, additional paperwork must be filed in those respective states as well.

Asset Distribution and Closure

What happens to assets when you dissolve a corporation? In most cases, remaining assets are distributed to shareholders after paying debts from the liquidation proceeds. The business may be wound up by a court-appointed receiver, or trustee until all issues involving claims against it have been resolved.

Voluntary Dissolution Methods

There are three ways by which a corporation can be dissolved voluntarily:

  1. By shortening the corporate term through the amendment of the articles of incorporation.
  2. By filing an application for issuance of certificate of dissolution with the Securities and Exchange Commission if no creditors are affected.
  3. By filing a formal petition for dissolution with the SEC, with due notice and hearing if creditors will be affected.

Steps to Dissolve a Corporation Voluntarily

Steps include:

  1. Request permission from directors and shareholders through meetings where they agree to legally close the business.
  2. Hold a board meeting and vote on a dissolution resolution.
  3. File a certificate of dissolution with the Secretary of State.
  4. Notify the IRS and other tax authorities.
  5. Settle claims with creditors.
  6. Liquidate assets.
  7. Distribute funds to shareholders.
  8. Close accounts.
  9. File final tax returns and documents.

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