For some corporations, a time comes when the people who own and run things voluntarily decide to close the business. If you’ve reached that point with your Florida corporation, you’ll need to take care of multiple tasks—including what is called dissolving and winding up your business.
Dissolving the Corporation
Your corporation is registered with the State of Florida. Officially ending its existence as a state-registered business entity, and putting it beyond the reach of creditors and other claimants, begins with a formal process called “dissolution.” While a corporation may be involuntarily dissolved through a court order, or for administrative reasons such as failing to file an annual report, this article covers voluntary dissolution by a corporation’s shareholders. Also, while there are streamlined procedures for dissolving corporations that have not yet issued stock or not yet started doing business, those procedures are not covered in this article.
Florida’s Business Corporation Act (“BCA”) provides for voluntary dissolution through a shareholder vote at a shareholder meeting. Before the vote, your board of directors must submit a proposal to dissolve to the shareholders. You are required to give ten days advance notice to each shareholder, whether or not entitled to vote, of the proposed meeting to consider dissolution. Unless your articles of incorporation or board of directors require a greater vote or a vote by voting groups, a majority of all votes entitled to be cast must approve the dissolution. If you use this method, make sure to properly record both the board’s proposal and the shareholders’ votes.
The BCA also provides a method for dissolution that allows you to avoid action by the board, and a formal meeting and vote. In short, unless your articles of incorporation provide otherwise, dissolution may be approved by the consent of only the majority of voting shares otherwise required under the BCA when shareholders vote at a shareholder meeting. The shareholders must sign a document, known simply as a “consent,” that states the corporation is dissolved. The consent then must be properly entered in the corporation’s records. You must give notice of the action to dissolve to any nonvoting shareholders and any voting shareholders who have not consented. This notice must be given within ten days after receiving the requisite number of consents. Dissolution based on written consent can be more efficient for small businesses where most or all of the voting shareholders are directors—and there is general agreement on dissolution.
Certain Matters are Unchanged by Dissolution
Note that dissolution, alone, does not:
- transfer title to the corporation’s property
- prevent transfer of corporation shares (although the authorization to dissolve may provide for closing the corporation’s share transfer records)
- generally subject the corporation’s directors or officers to standards of conduct different from those that applied before dissolution
- change quorum or voting requirements for the corporation’s board of directors or shareholders, change provisions for the selection, resignation, or removal of directors or officers or both, or change provisions for amending the corporation’s bylaws
- prevent the commencement of a legal proceeding by or against the corporation in its corporate name
- abate or a suspend a legal proceeding pending by or against the corporation or any officers, directors, or shareholders on the effective date of dissolution; or
- terminate the authority of the corporation’s registered agent.
Articles of Dissolution
After shareholders approve the dissolution of your corporation, you should file articles of dissolution with the Department of State’s Division of Corporations (“DOC”). The BCA does not strictly require you to file this document, instead stating that a corporation “may” dissolve by filing the articles. However, for various reasons, including limiting liability and terminating various filing requirements, filing articles of dissolution is generally the best practice. (In short, if you don’t file articles of dissolution, you won’t be completing the voluntary dissolution of your corporation.)
Under the BCA, the articles of dissolution must contain the following items:
- the name of your corporation
- the date dissolution was authorized; and
- a statement that the number of votes cast for dissolution by the shareholders was sufficient for approval.
(If dissolution was approved by shareholders voting in voting groups, you must include a statement for each separate voting group that the number of votes cast for dissolution by the shareholders was sufficient for approval.)
An articles of dissolution form is available for download from the DOC website. You can file the form by mail or hand delivery. The downloadable form includes a cover letter template that you should complete and include with your filing. You can also file for dissolution online. The filing fee is $35 filing regardless of how you file. If you mail in your filing it should take about one week to process. If you file in person your filing can be processed while you wait. Online filings are processed in 2-3 business days.
Note that your business name will become available for use by others 120 days after dissolution.
Following dissolution, your corporation continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as “winding up” the company. It may be appropriate to designate one or more officers and/or directors to handle the winding up.
Under the BCA, key winding up tasks include:
- collecting the corporation’s assets
- disposing of corporation properties that will not be distributed in kind to shareholders
- discharging or making provision for discharging the corporation’s liabilities; and
- distributing remaining corporation property among shareholders according to their interests.
Regarding the last two listed items, be aware that your corporation’s first obligation is to discharge liabilities. This includes paying all business taxes and creditors. Only then may the corporation distribute remaining assets to shareholders.
Notice to Creditors and Other Claimants
One other key task is giving notice to creditors and other claimants of your corporation’s dissolution. Giving notice is optional. However, doing so will help limit your liability and also allow you to more safely make final distributions to shareholders.
Under the BCA, one way to give notice is by sending a written document directly to known claimants after dissolution. Proper written notice must:
- provide a reasonable description of the claim that the claimant may be entitled to assert
- state whether the claim is admitted or not admitted, in whole or in part, and, if admitted, (a) the amount that is admitted, which may be as of a given date, and (b) any interest obligation if fixed by an instrument of indebtedness
- provide a mailing address where a claim may be sent
- state the deadline, which may not be fewer than 120 days after the effective date of the written notice, by which confirmation of the claim must be delivered to the dissolved corporation; and
- state that the corporation may make distributions thereafter to other claimants and the corporation’s shareholders or persons interested as having been such without further notice.
If you’re giving written notice to known claimants, the BCA also more specifically requires that you give the same notice to persons whose claims “are contingent upon the occurrence or nonoccurrence of future events or otherwise conditional or unmatured.”
You also may give notice to unknown (potential) claimants by filing a notice of dissolution with the Department of State (“DOS”) or by publishing a notice in a newspaper. (A form for filing notice with DOS is available for download from the DOC website.) As with sending direct notice to known claimants, there are specific rules for giving notice to unknown claimants via the DOS or by newspaper publication. Generally speaking, claimants have four years after notice is filed with the DOS or is published in a newspaper to bring a claim.
Some of the rules for giving notice, as well for responding to claims, can be intricate and hard to understand. Moreover, it may be difficult to determine if a person has a “contingent” or “conditional” claim. Therefore, when dealing with giving claimants notice, you should strongly consider getting assistance from a business attorney.
Florida does not require that you obtain tax clearance before allowing you to file to dissolve to your corporation.
For federal tax purposes, check the “final return” box on your IRS Form 1120 (for traditional corporations) or IRS Form 1120S (for S corporations).
An S corporation is a corporation that has filed an election with the IRS to have business income, losses, deductions, and credits pass through to individual shareholders for federal tax purposes. Only the shareholders, and not the corporation, pay federal taxes on income from the business. Potential tax issues aside, the process for dissolving and winding up an S corporation is generally the same as dissolving and winding up a traditional corporation.
Is your corporation registered or qualified to do business in other states? If so, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be called a termination of registration, certificate of termination of existence, application of withdrawal, or certificate of surrender of right to transact business. Failure to file the additional termination forms means you’ll continue to be liable for annual report fees and minimum business taxes.
You can find additional information, such as forms, mailing addresses, and filing fees, on the DOC website.
For information on dissolving and winding up corporations formed in other states, check Nolo’s 50-state series on dissolving corporations.
Final Note: Dissolving and winding up your corporation is only one piece of the process of closing your business. For further, general guidance on many of the other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.