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 Kansas 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 Kansas. 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 decree, or be “forfeited” for failing to file an annual report, this article covers voluntary dissolution by a corporation’s stockholders. Also, while there are special procedures for dissolving corporations that have not yet started doing business, or have only two stockholders who each own 50% of the company’s stock, those procedures are not covered in this article.
Kansas’s General Corporation Code (“GCC”) provides for voluntary dissolution through a stockholder vote at a stockholder meeting. Before the vote, your board of directors must adopt a resolution to dissolve, submit it to the stockholders, and call the stockholder meeting to vote on the matter. You are required to give ten days advance notice of the meeting to each stockholder entitled to vote on dissolution. A majority of the outstanding stock entitled to vote must approve the dissolution. If you use this method to dissolve, make sure to properly record both the board’s proposal and the stockholders’ votes.
The GCC also allows you to avoid a formal stockholder meeting and vote if stockholders entitled to vote on dissolution provide their written consent. There are two ways written consent can operate to approve dissolution. First, dissolution is approved if all stockholders entitled to vote provide their consent. (Note: No action by the board of directors is necessary in cases of unanimous stockholder consent.) Second, unless your articles of incorporation provide otherwise, dissolution may be approved by the consent of the majority of shares otherwise required under the GCC when stockholders vote at a stockholder meeting. (This generally would mean stockholders with a majority of voting shares must provide their consent.) In cases where consent is not unanimous among all voting stockholders, “prompt notice” of the action to dissolve the corporation must be given to all stockholders entitled to vote who did not consent. Regardless of whether all stockholders or only a necessary majority are providing consent, the required number of stockholders 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. Dissolution based on written consent can be more efficient for small businesses where most or all of the voting stockholders are directors—and there is either unanimous agreement on dissolution, or, where not prohibited by the articles of incorporation, at least some degree of majority agreement on dissolution.
Note that dissolution, alone, does not abate actions, suits, or proceedings begun by or against your corporation prior to dissolution or for a period of three years after dissolution (in most cases).
Certificate of Dissolution
After stockholders approve the dissolution of your corporation, you must file a certificate of dissolution with the Secretary of State (“SOS”). For corporations that are voluntarily dissolving after having issued shares and started doing business, there are two different certificate of dissolution forms available from the SOS:
- a form for dissolutions based on a stockholder vote (Form DS 53-01); and
- a form for dissolutions based on unanimous written consent (Form DW 53-01).
You can also file your certificate of dissolution online through Kansas’s BusinessCenter website. If you are submitting a printed certificate of dissolution, then, if possible, you should use an SOS form.
Both SOS certificate of dissolution forms require you to provide the following information:
- the name of your corporation
- your state-issued business entity ID number
- the name and mailing address of each corporation officer
- the name and mailing address of each member of the board of directors; and
- an effective date for the dissolution (which must be within 90 days of the filing date).
For dissolutions based on unanimous written consent, you must also include on the certificate the signatures of all voting stockholders. (If you are dissolving based on less-than-unanimous written consent, you should consult with a lawyer regarding how to prepare and file your certificate of dissolution.)
There is a $35 fee to file your certificate of dissolution on paper (by mail, fax, or in person) and a $30 fee to file online. Paper filings are usually processed in 2-3 business days and online filings should be processed immediately.
Note: You must be current with your annual reports before the SOS will process your filing. If you file your certificate after the close of your corporation’s tax year, you must file an annual report and related fee for the current year before you can dissolve. More generally, the SOS will not allow your corporation to dissolve unless all corporate fees due to the state have been paid.
Be aware your business name will become available for use by others 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 GCC, key winding up tasks include:
- prosecuting and defending suits, whether civil, criminal, or administrative
- disposing of and conveying corporation property
- discharging the corporation’s liabilities; and
- distributing any remaining corporation assets to stockholders.
Regarding the last two listed items, Kansas’s law is quite clear: Your corporation’s first obligation is to discharge liabilities and obligations. This includes paying all business taxes and creditors, as well as paying or otherwise resolving all claims against your corporation. Only then may the corporation distribute remaining assets to stockholders.
You do not need clearance from Kansas’s Division of Revenue (“DOR”) before you can file to dissolve 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 stockholders for federal tax purposes. Only the stockholders, 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, a certificate of termination of existence, an application of withdrawal, or a 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, phone numbers, and filing fees, as well as a link to online filing, on the SOS 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.