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 Rhode Island 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 Rhode Island. 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 have its articles of incorporation revoked 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 started doing business, those procedures are not covered in this article.
Rhode Island’s Business Corporation Act (“BCA”) provides for voluntary dissolution through either of two methods:
- action by the board of directors followed by a shareholder vote; or
- unanimous written consent of all shareholders.
Under the first method, your board of directors adopts a resolution recommending that the corporation be voluntarily dissolved. The shareholders then must vote on the proposed dissolution at a shareholder meeting. You are required to give at least ten days advance notice of the meeting to each shareholder entitled to vote on the proposal. At the shareholder meeting, approval of the dissolution requires a majority of the shares entitled to vote on the proposal. (If you have share classes entitled to vote separately, then a majority of the votes cast in each class must approve the proposal.) Make sure to properly record both the board’s resolution and the shareholders’ votes.
To use the second method, you should get signatures from all shareholders on a consent form containing a resolution to dissolve the corporation. If you adopt the resolution to dissolve using 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.
NOTE: Dissolution, alone, does not take away or impair any claim by or against the corporation or its directors, officers, or shareholders for a period of up two years after the date of dissolution.
Notice to Creditors
Regardless of whether you dissolve through board action and a shareholder vote, or through unanimous shareholder consent, immediately after adopting the resolution you must notify your corporation’s creditors that the resolution has been adopted.
Following dissolution, your corporation continues to exist 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
- selling or otherwise disposing of corporation properties that will not be distributed in kind to shareholders
- paying, satisfying, and discharging the corporation’s liabilities and obligations; and
- distributing the remainder of the corporation’s assets, either in cash or in kind, among the shareholders according to their respective rights and 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.
Rhode Island requires that your corporation be in good standing with the Division of Taxation (“DOT”) before you can file articles of dissolution. (Articles of dissolution are discussed just below). You will need to complete and file a request for a letter of good standing with the DOT. There is a $50 fee to file the request. A request form is available on the DOT website. Apart from providing various other information—corporation name, address, Secretary of State ID number, entity type—you should check off the box for “Filing for Articles of Dissolution” in Section V of the form (Dissolution/Cancellation of Domestic Entities).
It often takes four weeks to get a letter of good standing, but processing time can vary depending on specific circumstances.
For federal tax purposes, check the “final return” box on your IRS Form 1120 (for traditional corporations) or IRS Form 1120S (for S corporations).
Articles of Dissolution
After dissolving and winding up your corporation, including obtaining your letter of good standing from the DOT, you must file articles of dissolution with the Secretary of State (“SOS”). To complete the articles of dissolution, you must provide:
- the name of your corporation
- an indication of whether dissolution was approved by a shareholder vote or by unanimous written consent of the shareholders
- a statement that all debts, obligations, and liabilities of the corporation have been paid and discharged, or adequate provision has been made for the payment
- a statement that all remaining property and assets of the corporation have been distributed among its shareholders in accordance with their respective rights and interests
- a statement that there are no suits pending against the corporation in any court, or that adequate provision has been made for the satisfaction of any judgment, order, or decree which may be entered against it in any pending suit; and
- a statement that, as required by Section 7-1.2-1309 of the Rhode Island General Laws, the corporation has paid all fees and franchise taxes.
Make sure to include your letter of good standing from the DOT. The letter of good standing must be dated within 30 days of the date the SOS receives the articles of dissolution.
There is a $50 fee to file the articles. Your filing usually will be processed within seven to ten business days. You can get expedited processing if you deliver the articles in person to the SOS. An articles of dissolution form is available for download from the SOS website.
Be aware that your business name will become available for use by others immediately 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.
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.
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.