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 Minnesota corporation, you’ll need to take care of multiple tasks—including what is called dissolving and winding up your business.
Your corporation is registered with the State of Minnesota. 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 an annual renewal, 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, those procedures are not covered in this article.
Minnesota’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. Keep in mind that you are required to give at least ten days advance notice to each shareholder, whether or not entitled to vote, of the proposed meeting on dissolution. Then, at the meeting, dissolution must be approved by a majority of the voting power of all shares. 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 if all shareholders entitled to vote on dissolution provide their written consent. In addition, if your corporation is not publicly held and its articles of incorporation allow for a lesser majority vote on dissolution, you would need written consent only from that lesser majority. Written consent can be more efficient for small businesses where most or all of the shareholders are directors—and there is general 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 and do not get the consent of every shareholder, you must give all shareholders notice that the corporation has dissolved within five days after approval of the dissolution.
After dissolution is approved, you must file a notice of intent to dissolve with the Secretary of State (“SOS”). The notice must contain:
A notice of intent to dissolve form is available for download from the SOS. You can file by mail, online, or in person. If you file by mail the filing fee is $35 and processing will take about 5-7 business days. If you file online or in person you will receive expedited service (same day or while you wait) and pay a fee of $55.
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:
Regarding the last two listed items, be aware that your corporation’s first legal obligation is to pay or make provision to pay its debts, obligations, and liabilities. This includes paying all business taxes and creditors. Only then may the corporation distribute remaining assets to shareholders.
One key part of winding up, listed above, 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, giving notice involves both sending a written document directly to known creditors and claimants, and publishing a general notice in a newspaper for four consecutive weeks. A notice must contain:
If a creditor or other claimant responds to a notice within the allowed time by asserting a claim, there are additional periods of time allotted for accepting or rejecting the claim, and subsequently for a claimant to pursue further remedies. These time periods can easily range up to many months. With this in mind, if you choose to give claimants notice, you should strongly consider getting assistance from a business attorney.
At a certain point after dissolving your corporation, you must file articles of dissolution with the Secretary of State (“SOS”). The contents of the articles and the timing of their filing vary depending on whether you have given notice of dissolution to creditors and other claimants.
If you have given notice. The articles of dissolution must be filed either (a) after the required 90-day period following giving notice of dissolution has passed if all claims from creditors and other claimants have been paid or provided for, or (b) after the longest of the time periods involved in cases where not all claims have been resolved (as mentioned above, these time periods can easily range up to many months). The articles of dissolution must state:
If you have not given notice. The articles of dissolution must be filed after either (a) the payment of claims of all known creditors and claimants has been made or provided for, or (b) at least two years have elapsed from the date of filing the notice of intent to dissolve. If your corporation relies on the first of these two options—that is, if your corporation has paid or made provision to pay claims and creditors—the articles of dissolution must state as much. In addition, regardless of which of the two foregoing options you rely on, the articles of dissolution must state:
An articles of dissolution form is available for download from the SOS. The form allows you to indicate whether notice was given to creditors and claimants. The processing times and filing fees are the same as for the notice of intent to dissolve (see above).
Be aware that your business name will become available for use by others after dissolution.
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.
Minnesota does not require that you obtain tax clearance before dissolving 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).
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, online filing options, and filing fees, 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.