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 Utah 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 Utah. 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 or 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, those procedures are not covered in this article.
Utah’s Revised Business Corporation Act (“RBCA”) 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 notice of the shareholder meeting to each shareholder entitled to vote on dissolution. At the meeting, unless your articles of incorporation or bylaws require a greater vote, a majority of all votes entitled to be cast must approve the dissolution. (If there are voting groups entitled to vote separately on the dissolution, a majority from each group is required.) Make sure to properly record both the board’s proposal and the shareholders’ votes.
The RBCS also allows you to avoid a formal meeting and vote if shareholders entitled to vote on dissolution provide their written consent. In general, the written consent of holders of a majority of shares is required to approve dissolution. However, corporations in existence prior to July 1, 1992 may require written consent of all shareholders entitled to vote. If your corporation was formed before July 1, 1992, check with a lawyer for additional guidance. 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. There are also notice rules for dissolution by written consent. Generally, unless you have the written consent of all shareholders entitled to vote, you must give at least ten days advance notice to all nonvoting shareholders and to all voting shareholders who have not consented. However, your articles of incorporation or bylaws may contain other notice rules that require you to provide notice to certain shareholders only within a certain time after the consents have been recorded. 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.
Note that dissolution, alone, does not:
After dissolving your corporation, you should file articles of dissolution with the Division of Corporations and Commercial Code (“DCCC”). The RBCA does not strictly require you to file this document, instead stating that a corporation “may” dissolve by filing 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.)
To complete the articles of dissolution, you must provide:
An articles of dissolution form is available for download from the DCCC website. If you use the DCCC form—which is recommended—you must also provide the state-issued entity number for your corporation.
There is no fee to file the articles. You can file by mail, by fax, or in person. Your filing usually will be processed in five to seven business days. Forty-eight hour processing is available for an additional fee.
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.
Under the RBCA, 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 RBCA, 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.
Utah 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, filing fees, and instructions for setting up an online account, on the DCCC 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.