What does dissolving a corporation mean? Dissolving a corporation means, ceasing the ongoing operations in a business voluntary or involuntary by the management. In other words, it is the end of the legal existence of a corporation. Voluntary dissolution means. the corporation is going to be dissolved with the written consent of the shareholders. Involuntary dissolution means, the state force the corporation to cease its operations. There are some reasons for involuntary dissolution. As an example, failure to file an annual report, pay taxes, etc. can be taken. Let us simply guide you on how to dissolve a corporation without any disputes.
Major reasons for dissolving a corporation
A corporation may consider bankruptcy when it became insolvent and failed to pay the debt. In this kind of situation, the management may decide to dissolve the corporation in order to protect themselves from future liabilities.
having a higher rate of defective products can lead a corporation to dissolve.
Companies may not survive in the market if the managers and other responsible people of the corporation are having little or no vision about the corporation. The management should have a proper plan to continue not only the operations of the corporation but also they have to have the capability of managing good finance in the corporation. Otherwise, the dissolution may seem like the only answer.
Low cash flow
The corporation not having enough cash flow to continue the cash cycle may end up dissolving.
Noncompliance with the mandates
There are relevant tax rates that corporations must pay to the state. If the corporation failed to complete these mandatory requirements the state may decide that the operations should be ceased and the corporation should be dissolved.
dissolve the corporation without disputes!
We need the aid of lawyers and the assistance of tax consultants in order to dissolve a corporation without having any disputes. The responsible parties prepare articles of incorporation when starting a business. The preparation of articles of dissolution (certificate of dissolution) is also a must in order to inform the termination of operations of an organization. In order to protect yourself from future liability, taxes, and fees, the preparation of articles of dissolution is a must.
What happens to the legal personality after the dissolution?
Companies can acquire a legal personality just by fulfilling all of the formalities established by law. Once a corporation fulfilled these formalities the company is considered to have a separate legal personality which means, it gives the corporation the right to act as an individual person and perform tasks such as sue and be sued, pay taxes, hire employees, etc. distinct from its management. When dissolving a corporation, the registered name of the company will be removed from the official registrar of companies. The company will lose its’ legal personality once the company name removed.
If you decide to dissolve a corporation, just by ceasing the ongoing operations, that may not help. You should follow the relevant rules and regulations when dissolving a corporation.
Steps of dissolving a corporation
Call a board meeting.
Once you decided to dissolve the corporation you should notice that to the board of directors unless you will not be able to formally implement the decision. As usual, continue keeping the records of the minutes and take a vote. In order to implement the decision of dissolving the corporation, you need not only the approval of the directors but also the consent of the majority of shareholders. Here the majority is equal to two-thirds of the shareholders. Before requesting the dissolution a written agreement seeking dissolution and signed by each and every owner of the corporation must be completed.
Articles of dissolution
The articles of incorporation are the birth certificate of a corporation. Like that the articles of dissolution are the death certificate of a corporation. To cancel the legal ownership, there is a list of required forms. By contacting the office of the secretary of the state in which your corporation is incorporated you can get the details about necessary paper works.
Even though the operations of the corporation cease after the dissolution it still has to exist for the purpose of winding up. In this step management put their concentration on selling off the existing stock, paying off the company creditors and distributing any remaining assets to the shareholders.
Notice to claimants
After taking the decision of dissolving the corporation, send notices of dissolution to the people who are having a potential claim against your corporation. This will allow you to safely distribute the remaining assets to the shareholders.
Some states need corporations to obtain tax clearance. Some states need corporations to pay all the taxes due before the dissolution. This may vary from country to another with the rules and regulations related to the tax clearance.
Notifying other people
Send letters noticing the dissolution of the corporation to your customers, debtors, creditors, and other needed parties. As you have dissolved your corporation close all the bank accounts, licenses, permits, etc. You have to close everything held by the name of the dissolved corporation.
The above steps will give you a rough idea of the most important areas which you should highly consider when dissolving a corporation. Trying to avoid some steps may end up having different kinds of disputes in different areas. Example, distributing remaining assets, paying off creditors, etc.
Make sure that you are having a fair and actual reason to dissolve your corporation. If you take the decision of dissolution as an attempt to avoid taxes or some reason like that, that may lead you to several fines, penalties or ended up in jail. in order to dissolve a corporation without disputes, you should have a clear and fair reason to do so.
Most of the corporations’ shareholders do not have much involvement in company operations. But still, you have to keep in mind that they are the owners of the company. So, the directors need to inform the decisions they made about the corporation on behalf of shareholders. As they do have a fair right to know what is going to happen to the money they have invested.
In order to dissolve a corporation without disputes, you should always stay stick to the laws and regulations regarding the dissolution of corporations. Make sure that your lawyers are fully updated about the laws and regulations of the country you incorporated your corporation. Good luck!