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 Louisiana corporation, you'll need to take care of multiple tasks—including what is called dissolving and liquidating your business.
Caution: Louisiana's Business Corporation Law ("BCL") is unique and complex. This article only provides a general overview of some of the rules relating to dissolution, as well as some of the steps you may need to take in order to properly dissolve your corporation. You are strongly urged to consult with a knowledgeable Louisiana business attorney to assist you in properly dissolving your corporation.
Your corporation is registered with the State of Louisiana. 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 order, this article covers voluntary dissolution by a corporation's shareholders. Also, while there are special procedures for dissolving corporations that have not yet issued stock, those procedures are not covered in this article.
You should closely review—or, even better, have an attorney review—your articles of incorporation before taking any steps to dissolve. Your articles of incorporation may contain important rules relating to procedures for dissolution.
It's important to understand that, in general terms, there are two types of voluntary dissolution under Louisiana law: "short form" dissolution and "long form" dissolution. Short form dissolution is available where, at the time of dissolution, a corporation has no debt and no immovable property. (The most common kind of "immovable property" is real estate—land and buildings.) Conversely, long form dissolution applies where, at the time of dissolution, a corporation does have debt or does have immovable property. While the process for shareholders initially authorizing a dissolution may be the same for both forms of dissolution, long form dissolution involves significant additional steps.
The BCL provides for voluntary dissolution through a shareholder vote at a shareholder meeting. Unlike many other states, Louisiana's corporation dissolution statutes do not clearly require action by the board of directors before the shareholders vote. However, it is common practice, and other parts of the BCL suggest, that your board of directors must submit to the shareholders a proposal to dissolve and call a meeting of the shareholders to vote on dissolution. You generally are required to give ten days advance notice of the meeting to each shareholder entitled to vote on dissolution. Unless your articles of incorporation require a greater vote, a majority of the voting power present at the meeting must approve the dissolution. If you use this method to dissolve, make sure to properly record both the board's proposal and the shareholders' votes.
The BCL also allows you to avoid a formal shareholder meeting and vote if shareholders entitled to vote on dissolution provide their written consent. There are two ways written consent can operate to approve dissolution. First, dissolution is approved if all shareholders that have voting power provide their consent. Second, if your articles of incorporation allow for approval by written consent of fewer than all of the shareholders having voting power, dissolution may be approved by the consent of whatever majority is required by the articles of incorporation. Regardless of whether all shareholders or only a certain majority must provide consent, the required number of shareholders 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 dissolution is authorized by less than unanimous consent of the voting shareholders, you must give "prompt notice" of the action to dissolve to all shareholders with voting power who did not provide their consent. Dissolution based on 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.
If you are dealing with a short form dissolution, then, after your shareholders have authorized dissolution, you will proceed directly to filing an affidavit to dissolve your corporation with the Secretary of State ("SOS"). The SOS has an affidavit form—Form SS339, Affidavit to Dissolve Corporation—that you can download from the SOS website. The SOS form contains a simple statement that your corporation "is no longer doing business, owes no debts and owns no immovable property [and] is dissolved by filing this affidavit with the Secretary of State, executed by the shareholder(s), or incorporator(s) if no shares have been issued, attesting to such facts."
The affidavit must be signed in the presence of a notary.
When filing the affidavit, you must include a Transmittal Information cover sheet. The cover sheet is included with the SOS's downloadable affidavit form. You may file by mail, fax, or in person. (You may also be able to file online.) There is a $75 fee to file the affidavit. It usually takes 3-5 days to process a filing. Expedited processing (24 hours) is available for an additional fee.
When the filing has been processed, you will receive a certificate of dissolution from the SOS. You should file a copy of this certificate with the Clerk of Court where your corporation maintains its registered office. (If your corporation is located in Orleans Parish, you should file a copy of the certificate with the recorder of mortgages.)
The BCL makes clear that, after the affidavit is filed, the shareholders will be personally liable for any debts or claims. Therefore, it is important that you confirm that are not outstanding debts or claims before filing for short form dissolution. You may want to consult with an attorney to help ensure that short form dissolution makes sense in your particular case.
Finally, note that your business name will become available for use by others after dissolution.
For long form dissolutions, after the shareholders authorize the dissolution, they will need to appoint a person (or people) to act as a "liquidator" for the corporation. Appointment of the liquidator usually will be based on a majority vote of the voting shareholders. Generally speaking, all the rights, powers, and duties of the officers and board of directors are transferred to the liquidator, and, unless the liquidator decides otherwise, the authority and duties of the officers and directors end when the liquidator is appointed.
However, under the BCL, the appointment of the liquidator will not be "operative" until you take care of two tasks:
The published notice of authorization of dissolution must:
The certificate of dissolution (which is sometimes called an "amendment of dissolution"), apart from stating that the dissolution has been authorized in accordance with Section 12:142 of the BCL, must:
When filing the certificate (a.k.a. amendment) with the SOS, you must include a copy of the notice you published in a newspaper along with an affidavit from the publisher of the newspaper attesting to the publication.
The certificate serves a purpose similar to the affidavit that is used for short form dissolutions. The fee to file the certificate is $75. The SOS does not publish any form for the certificate of dissolution, so you will have to draft your own. Note: You should strongly consider having an attorney assist you in preparing and filing this document.
After you have published the notice of dissolution and filed a certificate of dissolution, a copy of the notice of dissolution, and the publisher's affidavit with the SOS, the liquidator can proceed with liquidating your corporation. (If the shareholders do not authorize liquidation without court involvement, a court will appoint a liquidator, and a different set of rules may apply to some liquidation activities. However, this article does not cover court-supervised liquidations.)
Liquidation can include any of a large number of tasks. The BCL, for example, lists 16 different, specific tasks that may be handled by a liquidator. However, the most important among those many potential tasks may be summarized as follows:
Regarding the last two listed items, be aware that the liquidator's first obligation is to pay all debts and liabilities. This includes paying all business taxes and creditors, as well as all contingent liabilities and debts. Only then may the liquidator pay remaining net assets to shareholders.
One other key part of liquidation is giving notice to creditors and other claimants of your corporation's dissolution. Under the BCL, giving notice involves both (a) sending a notice to all known creditors and persons believed to have valid claims against your corporation, and (b) publishing notice in a newspaper. The notice must call on the addressees to present their claims in writing and in detail, at a specified place and by a specified date, not less than six months after the notice was mailed.
There are many specific rules for how, where, and when to send and publish notice, as well how to respond to claims. Many of these rules can be hard to understand. Therefore, as with other steps in dissolving and liquidating your corporation, when it comes to giving notice to creditors and other claimants, you should strongly consider getting assistance from a business attorney.
When the liquidator has completed liquidation, he or she needs to sign a "liquidator certificate" and submit it to the SOS. There is no fee to file the certificate. However, before completing its processing of the liquidator's certificate, the SOS will check for certificates from the Department of Revenue ("DOR") and the Louisiana Workforce Commission ("LWC") showing that no taxes, fees, or other charges are due.
Once the SOS processes the liquidator's certificate, they will send back a certificate of dissolution. A copy of the certificate of dissolution must be filed with the recorder of mortgages in the parish where your corporation had its last registered office. (This is different from the certificate of dissolution you would receive in a short form dissolution, which, as noted above, generally should be filed with a Clerk of Court.)
There is no SOS form for the liquidator certificate, so you will have to draft your own—or, to help ensure the certificate contains the necessary information, have an attorney draft it.
Louisiana does not require that you obtain tax clearance before allowing you to file to dissolve your corporation. However, as noted above, the SOS will check for certificates from the DOR and LWC to make sure there are no unpaid amounts due.
For federal tax purposes, check the "final return" box on your IRS Form 1120 (for traditional corporations) or IRS Form 1120S (for S corporations).
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.
You can find additional information, such as forms, mailing addresses, and filing fees, on the SOS website. You are also strongly urged, in general terms, to get assistance from a business attorney familiar with Louisiana's unique dissolution laws.
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.