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 Connecticut 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 Connecticut. 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 maintain a registered agent, 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.
Connecticut'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. You are required to give ten days advance notice to each shareholder, whether or not entitled to vote, of the proposed meeting to consider dissolution. The number of votes required to approve the proposal depends in part on when your corporation was formed. For corporations formed January 1, 1997 or later, unless your certificate of incorporation or board of directors requires a greater vote or a vote by voting groups, a majority of all votes entitled to be cast must approve the dissolution. However, if your business was incorporated prior to 1997, then, unless certificate of incorporation expressly provides otherwise, a two-thirds majority of all votes entitled to be cast is required to approve the dissolution. If you dissolve based on a shareholder vote, make sure to properly record both the board's proposal and the shareholders' votes.
The BCA also allows you to avoid a formal shareholder vote at a meeting 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 entitled to vote provide their consent. Second, if permitted by your certificate of incorporation, dissolution may be approved by the consent of only that majority of shares otherwise required under the BCA when shareholders vote at a shareholder meeting. (Generally speaking, a simple majority for corporations formed in 1997 or later, or a two-thirds majority for corporations formed before 1997.) 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. You must give notice to nonvoting shareholders not more than 10 days after you have collected the written consents needed to dissolve. In addition, if you do not have unanimous consent of the voting shareholders, you must also provide notice of the action to dissolve to all voting shareholders who did not consent within 10 days after you have collected enough written consents to dissolve. Dissolution based on written consent can be more efficient for small businesses where most or all of the voting shareholders are directors—and there is either unanimous agreement on dissolution, or, where permitted, at least some degree of majority agreement on dissolution.
Note that dissolution, alone, does not:
After dissolving your corporation, you should file a certificate of dissolution with Commercial Recording Division of the Secretary of the State ("SOTS"). The BCA does not strictly require you to file this document, instead stating that a corporation "may" dissolve by filing the certificate. However, for various reasons, including limiting liability and terminating various filing requirements, filing a certificate of dissolution is generally the best practice. (In short, if you don't file a certificate of dissolution, you won't be completing the voluntary dissolution of your corporation.)
To complete the certificate of dissolution, you must provide:
A certificate of dissolution form (Form CDRS-1) is available for download from the SOTS website. There is a $50 fee to file the certificate. You can file by mail, fax, or in person. If you file by fax, there is a Fax Filing Service Request form, which you can download from the SOTS website, that you should include with your filing. Your filing usually will be processed in 3-5 business days. Expedited processing is available for an additional fee and requires inclusion of an Expedited Service Request form (the form is available for download from the SOTS website).
Note that your business name will become available for use by others 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 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.
NOTE: Connecticut's BCA, unlike the business corporation acts of other states, states that "No final liquidating distribution of assets shall be made to shareholders by a dissolved corporation" before the corporation has obtained a statement or statements from the Department of Revenue Services ("DRS") and the administrator of the unemployment compensation law, indicating one of three things:
To obtain the required statement from the DRS, completing and submitting a Status Letter Request (DRS Form TPG-170) may suffice. Unemployment compensation is handled through the Department of Labor ("DOL") and the DOL states that you can request a letter of good standing by contacting mailing or faxing a request; the DOL's letter of good standing also may be sufficient. You can find limited additional information on the DRS and DOL website. However, you are strongly advised to consult with a knowledgeable Connecticut business attorney to ensure you obtain the proper statements.
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 three 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.
Connecticut does not require that you obtain tax clearance before filing to dissolve your corporation. However, as mentioned above, state law does require that you obtain statements from the DRS and DOL before making any final distributions to shareholders. In addition, the DRS recommends that you close your corporation business tax account after you have dissolved your corporation. The DRS also requires you to file a final Form CT-1120 (or, for S corporations, Form CT-1065/CT-1120SI).
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.
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.