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 South Carolina 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 South Carolina. 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 franchise taxes, 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.
South Carolina’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 ten days advance notice to each shareholder, whether or not entitled to vote, of the proposed meeting on dissolution. Then, unless your articles of incorporation requires a different vote, or your board of directors requires a greater vote or a vote by voting groups, the proposal to dissolve must be approved by two-thirds of all the votes entitled to be cast on the proposal. Make sure to review your articles of incorporation for any provisions regarding voting on dissolution (in no case can dissolution be approved by less than a majority vote). Also make sure to properly record both the board’s proposal and the shareholders’ votes.
The BCA also allows you to avoid a vote at a formal meeting if all shareholders entitled to vote on dissolution provide their written 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 records. If you use this method, you must give any nonvoting shareholders at least ten days advance notice that the corporation will dissolve.
Note that dissolution, alone, does not:
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” 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.)
Under the BCA, the articles of dissolution must contain:
Also, if voting by voting groups was required, the information in the last listed item must be provided separately for each voting group entitled to vote separately on the plan to dissolve.
An articles of dissolution form is available for download from the SOS website. In addition to the information required by the BCA, the SOS form also requires you to provide the date of incorporation and the name and address of your corporation’s registered agent.
There is a $10 fee to file the articles. If you are filing by mail, you should include two copies of the completed articles and self-addressed stamped envelope to receive back a certified copy for your records. Your filing usually will be processed within two business days.
Be aware that your business name will become available for use by others 120 days 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. The BCA states that “a dissolved corporation shall wind up and liquidate its business and affairs as expeditiously as practicable.”
Under the BCA, key winding up tasks include:
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.
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:
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.
For corporations that have not been dissolved for administrative reasons, South Carolina 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.