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 Massachusetts 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 Massachusetts. 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 for administrative reasons such as failing to file annual reports or pay taxes, this article covers voluntary dissolution by a corporation’s shareholders. Also, while there are streamlined procedures for closing corporations that have not yet issued stock or not yet started doing business, those procedures are not covered in this article.
In order to voluntarily dissolve your corporation, you first should look to your articles of organization. Under the Massachusetts’ Business Corporation Act (“BCA”), voluntary dissolution may be authorized by any method or procedure contained in those articles. Typically, the articles of organization will require adoption of a resolution to dissolve by the board of directors, followed by a vote on the resolution by the shareholders. The rules may also more specifically require that a certain percentage of shares vote in favor of the resolution. In other cases, dissolution may be allowed if all shareholders provide written consent. Make sure you follow any specific procedural requirements that may be part of your articles’ dissolution rules, such as setting a specific time to meet and vote, and giving proper advance notice to all shareholders regarding the meeting.
The BCA also contains its own procedures for voluntary dissolution. The BCA procedure may be used:
- if your articles of organization do not provide rules for voluntary dissolution; or
- if your articles of organization do provide rules for voluntary dissolution but do not state that those rules are the only ones that can be used.
Under the primary BCA procedure, your corporation is dissolved through action by your board of directors followed by a shareholder vote. More specifically, your board of directors must adopt and submit a proposal to dissolve to the shareholders. The shareholders must then vote on the proposal at a shareholder meeting. You are required to give at least seven days advance notice to each shareholder, whether or not entitled to vote, of the proposed shareholder meeting. Then, unless your articles of organization, bylaws, or the board of directors requires a different majority margin, the proposal to dissolve must be approved by at least two-thirds of the votes entitled to be cast on the matter. (Certain additional rules apply if shareholders are divided into multiple voting groups.) If you use this method, make sure to properly record both the board’s proposal and the shareholders’ votes.
The BCA also allows you to avoid a formal meeting and vote by getting written consent from shareholders. Unless your articles of organization provide otherwise, you must get written consent from all shareholders entitled to vote on dissolution. (Your articles of organization may allow for less than unanimous consent.) This method can be more efficient for small businesses where most or all of the shareholders are directors—and there is full agreement on dissolution. All shareholders entitled to vote 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. If you use this method, you must give any nonvoting shareholders at least seven days advance notice that the corporation will dissolve.
Certain Matters are Unchanged by Dissolution
Among other things, dissolution alone:
- does not transfer title to your corporation’s property
- does not prevent transfer of corporate shares or securities (although the authorization to dissolve may provide for closing the corporation’s share transfer records)
- generally does not subject your corporation’s directors or officers to standards of conduct different from those that applied before dissolution
- does not prevent the commencement of a legal proceeding by or against your corporation
- does not abate or a suspend a legal proceeding pending by or against your corporation on the effective date of dissolution; and
- does not terminate the authority of the corporation’s registered agent.
Articles of Dissolution
After dissolving your corporation, you should file articles of dissolution with the Secretary of the Commonwealth (“SOC”). Massachusetts does not strictly require you to file this document, instead stating that a corporation “may” file the articles. However, for various reasons, including limiting liability and terminating various filing requirements, filing articles of dissolution is generally the best practice. (If you have specific questions about whether to file, you should contact a local attorney.)
Note: Before filing the articles of dissolution, make sure you are up to date with your annual reports. Articles of dissolution cannot be filed unless your corporation has submitted annual reports for the last ten years of its existence.
The articles of dissolution must contain (a) the name of your corporation, (b) the date dissolution was authorized, and (c) information regarding the method or procedure used for dissolution as follows:
- if dissolution was approved by a shareholder vote under the BCA procedure, a statement of the number of votes entitled to be cast on the proposal to dissolve, and either (1) the total number of votes cast for and against dissolution or (2) the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval; or
- if dissolution was authorized by a method or procedure specified in your articles of organization, a statement of that method or procedure, together with sufficient information to establish that the corporation has complied with that method or procedure (such as official corporate records recording a shareholder vote to dissolve).
The SOC has an articles of dissolution form available for download. The SOC form contains the necessary statements regarding the method or procedure used for dissolution, with blanks for information such as number of votes in favor of dissolution. The SOC requires that information entered on the form be typed, not handwritten.
There is a $100 fee to file the articles of dissolution. Articles filed by mail are usually processed in 3-5 business days, filings delivered by hand usually require 1-2 business days, and faxed documents generally are processed the same day.
Be aware that your business name generally will become available for use by others after dissolution. Massachusetts allows you to apply to reserve your corporate name for up to 60 days during the process of winding up. Check the SOC website for details and forms.
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
- making adequate provision, by payment or otherwise, and after taking into account statutory provisions related to giving notice to creditors and other claimaints, for “all of the corporation's existing and reasonably foreseeable debts, liabilities, and obligations, whether or not liquidated, matured, asserted, or contingent”; 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 pay or otherwise discharge its debts, liabilities, and obligations. 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, you can give notice to known claimants whose claims you dispute by sending a written document directly to those claimants after dissolution. In addition, the BCA contains rules for giving notice regarding other, unknown claims by publishing in a newspaper. Generally speaking, claimants usually have three years to respond to either type of notice. However, the rules for providing notice are complex, covering such things as what information a notice must contain and how corporate assets are to be retained to cover potential claims. Even if you currently don’t know of any pending claims against your corporation, you should consider seeking guidance from a business attorney regarding giving notice.
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.
Massachusetts does not require that you obtain tax clearance before dissolving your corporation. However, along with filing a final state tax return for your corporation, you are required to notify the Massachusetts Department of Revenue (“DOR”) of the dissolution within 30 days after the dissolution is authorized. According to the DOR, you can fulfill this requirement by sending a letter on corporate letterhead, signed by a corporation officer, stating that the corporation intends to dissolve and including a copy of the vote authorizing the dissolution. For more information, including mailing addresses, check the section on closing a business on the DOR website.
For federal tax purposes, check the “final return” box on your IRS Form 1120 (for traditional corporations) or IRS Form 1120S (for S corporations).
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, phone and fax numbers, and filing fees, on the SOC 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.