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 Oregon 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 Oregon. 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 report or pay fees, 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.
The sections on dissolution in Oregon’s Business Corporation Act (“BCA”) provide for voluntary dissolution through either of two methods:
- action by the board of directors followed by a shareholder vote; or
- written consent of all shareholders.
Under the first method, your board of directors submits a proposal to dissolve to the shareholders. The shareholders then must vote on the proposal at a shareholder meeting. You are required to give at least ten days advance notice to each shareholder, whether or not entitled to vote on the proposal, of the proposed meeting on dissolution. Then, unless your articles of incorporation or board of directors requires a greater vote or a vote by voting groups, approval of the dissolution requires a majority of all votes entitled to be cast on the proposal. Make sure to properly record both the board’s resolution and the shareholders’ votes.
The second method is summed up in the BCA with a single sentence: “A corporation may be voluntarily dissolved by the written consent of all of its shareholders.” To use this method, you should get signatures from all shareholders on a document known simply as a “consent.” If you use this method there should be no need for separate action by the board of directors. This method can be more efficient for small businesses where all or most of the shareholders are also directors, and where there is unanimous agreement regarding dissolution.
In addition to, and overlapping somewhat with, the latter method, an entirely separate section of the BCA contains a more general rule allowing actions that otherwise require a shareholder meeting—such as dissolution—to be accomplished through written shareholder consent. Under this separate rule, dissolution may be approved with the written consent of all shareholders entitled to vote on the action. Moreover, the rule also allows for action based on the written consent of a lesser majority of shareholders’ votes if permitted by your articles of incorporation. If the action is taken by unanimous consent of the voting shareholders, you must give written advance notice to nonvoting shareholders at least ten days before the action. Alternatively, if you are taking the action based on a lesser majority of shareholder votes, you must give notice to nonconsenting and nonvoting shareholders “promptly” after the action is taken.
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)
- subject the corporation’s directors and 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
- abate or a suspend a legal proceeding pending by or against the corporation on the effective date of dissolution; or
- 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 State (“SOS”). The BCA does not strictly require you to file this document, instead stating that a corporation “may” dissolve by filing articles of dissolution with the SOS. 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.)
To complete the articles of dissolution, you must provide:
- the name of your corporation
- the date dissolution was authorized; and
- either (a) if dissolution was approved by the shareholders, the number of votes entitled to be cast on the proposal to dissolve, the total number of votes cast for and against dissolution, and a statement that the number of votes cast for dissolution was sufficient for approval; or (b) a statement that all shareholders entitled to vote consented in writing to the dissolution.
There is a $100 fee to file the articles. A confirmation copy costs an additional five dollars. You can file by mail, fax, or in person. An articles of dissolution form is available for download from the SOS website. Your filing usually will be processed in one week. In-person filings receive faster processing. If you file by fax, include the fax cover sheet to provide your payment information (the form is available on the SOS website).
Be aware that 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 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:
- describe information that must be included in a claim
- provide a mailing address where a claim may be sent
- state the deadline, which may not be fewer than 120 days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
- state that the claim will be barred if not received by the deadline.
You also may give notice to unknown (potential) claimants by publishing in a newspaper. As with sending direct notice to known claimants, there are specific rules for giving notice through publication. Generally speaking, claimants have five years after the date of newspaper publication to bring a claim.
Some of the rules for giving notice and responding to claims can be hard to understand. Therefore, if you choose to give claimants notice, you should strongly consider getting assistance from a business attorney.
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.
Oregon 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, 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.