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 Ohio 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 Ohio. 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 cancelled for failing to pay franchise taxes, this article only covers voluntary dissolution by a corporation’s shareholders. Also, while there are special procedures for dissolving corporations that have not yet issued stock or started doing business, those procedures are not covered in this article.
Ohio’s General Corporation Law (“GCL”) provides for voluntary dissolution through a shareholder vote on a resolution to dissolve the corporation. The vote must take place at a formal shareholder meeting. Keep in mind that you are required to give notice of the proposed meeting to all shareholders, whether or not they are entitled to vote. By default, a two-thirds majority of the voting power at the meeting must approve the resolution to dissolve the corporation. However, you should check your articles of incorporation: the GCL allows for the possibility that your articles of incorporation require or permit a greater or lesser majority to approve the dissolution. Regardless of what type of majority is involved, make sure to properly record the shareholders’ votes.
Certain Matters are Unchanged by Dissolution
Note that dissolution alone:
- does not terminate remedies available to or against your corporation for legal or other claims; and
- does not block pending actions, suits, or proceedings by or against the corporation.
Certificate of Dissolution (Form 561)
After dissolving your corporation, you must file a certificate of dissolution with the Secretary of State (“SOS”). As further discussed below, along with the certificate itself, you must submit multiple additional documents relating to taxation and other issues.
The certificate of dissolution must contain:
- the name of your corporation
- a statement that a resolution of dissolution has been adopted
- a statement of the manner of adoption of such resolution (“by the shareholders pursuant to Ohio Revised Code section 1701.86(E)”)
- the place in Ohio where your corporation’s principal office is located
- the Internet address of each domain name held or maintained by or on behalf of your corporation
- the name and address of your corporation’s statutory agent; and
- the date of dissolution if other than the filing date (the date of dissolution cannot be more than 90 days after the filing of the certificate of dissolution).
The certificate generally must be signed by an authorized officer. (If an authorized officer fails to sign and file the certificate within 30 days of dissolution, other signature rules apply.)
There is a $50 fee to file the certificate. You should use the certificate of dissolution form published by the SOS. The form is part of a group of corporation dissolution forms and instructions that are available on the SOS website as a single downloadable file—Form 561. Your filing typically will be processed in 3-7 business days. Various forms of expedited processing, listed on Form 561, are available for additional fees.
Be aware that your business name will become available for use by others after dissolution.
Tax and Other Clearances
The State of Ohio requires that you submit significant additional documentation with your certificate of dissolution. As summarized by the Department of Taxation (“DOT”), “The certificate must be accompanied by certain affidavits, guarantees, releases or other documents obtained from various governmental agencies including the Ohio Department of Taxation, the Ohio Department of Job and Family Services, the Ohio Bureau of Workers’ Compensation and the county treasurer of each county in which the corporation has personal property or, if the applicant pays personal property tax to the Ohio Treasurer of State, from that official.”
More specifically, the additional required documents are:
- an affidavit naming the counties, if any, where the corporation has personal property, or else stating that the corporation pays personal property taxes to the state only
- a tax clearance certificate from the DOT showing that the corporation has paid all taxes due as of the date of dissolution, or an affidavit stating that the corporation is not required to pay or the DOT has not assessed any such tax (use DOT Form D5 to request a tax clearance certificate)
- a tax clearance certificate from the DOT showing the payment of all personal property taxes accruing up to the date of dissolution or showing that such payment has been adequately guaranteed, or an affidavit containing a statement that the corporation is not required to pay or the DOT has not assessed any such tax (use DOT Form D5 to request a tax clearance certificate)
- evidence from the director of Job & Family Services (“JFS”) showing that all contributions due from the corporation as an employer have been paid, or that such payment has been adequately guaranteed, or that the corporation is not subject to such contributions; and
- evidence from the Bureau of Workers’ Compensation (“BWC”) showing that all premiums due from the corporation as an employer have been paid, or that such payment has been adequately guaranteed, or that the corporation is not subject to such premium payments.
However, in place of at least some of these documents, you may be able to submit a single affidavit. In order to use the single-affidavit option, you must (a) notify the DOT, JFS, and BWC, in writing, of the scheduled effective date of your corporation’s dissolution, and (b) state in your written notification to each of these agencies that your corporation acknowledges the applicability of section 1701.95 of the Ohio Revised Code. (Section 1701.95 states, among other things, that it is against the law to pay dividends or make distributions to shareholders without first paying or making adequate provision to pay all known obligations of the corporation.) An affidavit form is included as part of the Form 561 package.
For federal tax purposes, check the “final return” box on your IRS Form 1120 (for traditional corporations) or IRS Form 1120S (for S corporations).
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. The GCL states that the directors “shall proceed as speedily as is practicable” to wind up the corporation.
The GCL contains an extensive list of potential winding-up tasks, including:
- filling vacancies
- electing officers
- appointing agents, liquidators, or other entities or persons to carry out the winding up
- carrying out corporation contracts
- making new contracts
- borrowing money
- mortgaging or pledging corporation property as security
- selling corporation assets at public or private sale
- making conveyances in the corporate name
- leasing real estate for any term
- settling or compromising claims in favor of or against the corporation
- employing one or more persons as liquidators to wind up the corporation’s affairs with such authority as the directors see fit to grant
- causing the title to any of the corporation’s assets to be conveyed to liquidators
- applying assets to the payment of obligations; and
- distributing the remainder of the assets either in cash or in kind among the shareholders according to their respective rights and interests after paying or adequately providing for the payment of all known obligations of the corporation.
Regarding the last two listed items, paying obligations and distributing remaining assets to shareholders, be aware that your corporation’s first legal requirement is to pay its debts and other obligations. This includes paying all business taxes and creditors. Only then may the corporation distribute remaining assets to shareholders. Also, be aware that the GCL has a fairly broad definition of the obligations that must be paid or provided for. They include “claims that have not been made known to the corporation or that have not arisen but that, based on facts known to the corporation, are likely to arise or to become known to the corporation within five years after the date of dissolution or such longer period of time as the directors or a court . . . may determine, not to exceed ten years after the date of dissolution.”
Notice to Creditors and Other Claimants
You must give notice of your corporation’s dissolution to creditors and other claimants. Under the GCL, there are several different notice requirements.
First, for each known creditor that has a claim, “including claims that are conditional, unmatured, or contingent upon the occurrence or nonoccurrence of future events,” you must send notice by certified or registered mail. Proper mailed notice to these creditors must state:
- that all claims must be presented in writing, must identify the claimant, and must contain sufficient information to reasonably inform the corporation of the substance of the claim
- the mailing address to which the person must send the claim
- the deadline, which cannot less than 60 days after the date the notice is given, by which the corporation must receive the claim
- that the claim will be barred if the corporation does not receive the claim by the deadline; and
- that the corporation may make distributions to other creditors or claimants, including distributions to shareholders of the corporation, without further notice to the claimant.
Second, you must post this same notice on any website your corporation maintains in its name. Third, you must send a copy of this same notice to the SOS to be posted on its website. The notice will remain on the SOS website for at least five years. Finally, if you file your certificate of dissolution before May 4, 2017, you must also publish the same notice at least once a week for two consecutive weeks in a newspaper published and of general circulation in the county where your corporation’s principal office is located.
The rules for giving notice 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.
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.