With corporations, there might come a time when the people who own and run the business voluntarily decide that it's time to call it quits. If you've reached this point, you'll need to follow some steps to formally dissolve your corporation and wind up your business.
You created a corporation by filing documents with your state and you'll need to go through a similar process to formally dissolve it. Otherwise, your corporation will continue to exist even if you no longer conduct any business through it.
If your company still legally exists, your state filings and other legal obligations continue and the corporation remains open to lawsuits and can incur additional liability. So it's important to follow through with the necessary filings once you decide it's time to close up shop.
Ending your business happens in two phases:
First, you dissolve your corporation. Dissolution involves voting to dissolve your business and filing legal paperwork with the state.
Second, you wind up your corporation. Winding up involves settling your debts, distributing remaining assets, notifying creditors and customers of the closure, and closing your accounts, licenses, registrations, and permits.
Each state has its own rules so you might want to seek help from a business lawyer to make sure you follow your state's requirements. Many states allow you to set your own rules and procedure in your corporation's articles of incorporation and bylaws—with some limitations.
You'll generally need to follow the steps described below to dissolve your corporation. States might differ some, so be sure to check your state's dissolution laws for specific guidance. Here, we'll look at the specific requirements for Florida, Illinois, and Massachusetts.
You'll also want to make sure you keep good records, such as meeting minutes, of any corporate action taken on dissolution.
The first step in dissolving a corporation usually involves having your board of directors vote and adopt a resolution to dissolve the corporation. Generally, you start the dissolution process by holding a meeting of the board of directors to vote on a resolution to approve the dissolution of the corporation.
Your articles of incorporation or bylaws (or state law) might require a particular percentage of directors to approve the dissolution, such as a majority or two-thirds of the directors. Though many states—for example, Florida, Illinois, and Massachusetts—don't require a minimum vote from the corporation's directors.
Once the board has approved the dissolution, the matter can then be submitted to the shareholders for their approval. Many states have rules for when and how the directors must give notice to the shareholders of the upcoming dissolution vote.
Typically, directors must provide the shareholders, regardless of whether they're entitled to vote on the dissolution, written notice of the dissolution vote a number of days before the vote happens. Usually, the written notice must include information like the date, time, place, and purpose of the meeting. States differ on how many days' notice must be given, for example:
Your articles of incorporation or bylaws might have additional requirements. For example, your articles might require that notice for a dissolution vote be given by certified mail with return receipt requested.
Now that shareholders have notice of the dissolution, they must vote on it. State law or your corporation's organizational documents likely requires a certain number of shareholders to vote in favor of the dissolution for it to pass. Some states might even allow for dissolution by written consent of the shareholders without the need for a meeting.
Minimum required vote. Florida allows dissolution by a vote of the majority of shareholders while Illinois and Massachusetts specify a two-thirds vote. However, you can specify different voting requirements in your articles or bylaws as long as the vote required isn't less than a majority.
Vote by written consent. Additionally, in Florida, a majority of the shareholders can approve to dissolve a corporation by written consent without holding a meeting. (Fla. Stat. § 607.1402 (2023).) In Illinois, you need the written consent of all shareholders to dissolve the corporation without a shareholders' meeting. (805 Ill. Comp. Stat. § 5/12.10 (2023).) Massachusetts doesn't specify such a method.
Once you have the necessary corporate approval to dissolve your corporation, your next step is to file articles (sometimes called a "certificate") of dissolution with the state. Most states have a dissolution form that you can file by mail or, in some states, online.
For example, you can file these forms in the following states to dissolve your corporation:
Check your secretary of state's (SOS) website (or your state corporate filing office) for your state's dissolution form and filing requirements, including required fees. Even if a dissolution form isn't legally required, it's highly recommended that you file one with the SOS to complete the voluntary dissolution of your corporation.
After dissolution, your corporation continues to exist for the purpose of winding up its business. Winding up generally means resolving all outstanding claims and lawsuits against the company, distributing any remaining assets to shareholders, and closing any open accounts, permits, or registrations.
A key task in winding up your corporation is to give notice to anyone with a potential claim against your corporation—including both known and unknown creditors. While providing notice often isn't legally required, usually states allow you to dispose of (dismiss or bar) claims when you follow the state's notice requirements.
Generally, a notice to creditors must include the following information:
The type of notice differs between creditors with known claims and creditors with unknown claims:
Providing notice also helps limit your liability and allows you to confidently make final distributions of your corporate assets to shareholders. States have strict rules about giving proper notice so you might want to consult with a business attorney if this is an issue for your corporation.
Disposing of claims in Florida. In Florida, you can dispose of known claims against your corporation by giving these known creditors notice of your corporation's dissolution and providing them with a deadline of no less than 120 days to send their claim. For unknown claims, Florida has a slightly unusual law. You can dispose of unknown claims either by filing a form with the Florida DOR or by publishing a notice in the paper for two consecutive weeks. Creditors with unknown claims have four years to come forward with their claims. (Fla. Stat. § 607.1406-1407 (2023).)
Disposing of claims in Illinois. You can dispose of known claims in Illinois if you send notice to your known creditors within 60 days of your corporation's dissolution. You have to give these creditors at least 120 days to send their claims. In Illinois, unknown creditors have five years to submit their claims unless a statute of limitations provides less time. (805 Ill. Comp. Stat. §§ 5/12.75-5/12.80 (2023).)
Disposing of claims in Massachusetts. Massachusetts's notice laws work a little differently than other states. Instead of taking action to bar creditor's claims, you can take action to limit the assets available to pay creditors. Specifically, if you provide proper notice, creditors can only be paid from the assets the corporation currently retains (still has) and distributed to shareholders within three years of the corporation's dissolution. To limit the assets, you'll need to provide direct written notice to known creditors and publish a notice in the newspaper to unknown creditors. Generally speaking, creditors usually have three years to respond to either type of notice. (Mass. Gen. Laws ch. 106, § 14.06-14.07 (2023).)
Some states require you to obtain tax clearance before you file your articles of dissolution. Typically, the state taxing authority (usually the department of revenue) will give you a letter or certificate that says you've paid all your business taxes and filed all of your returns.
Other states simply require that you pay your taxes and file your returns during the winding-up process. You'll need to check your state rules on dissolution and tax clearance.
For example, Florida, Illinois, and Massachusetts don't require you to obtain tax clearance before dissolving your corporation. But Illinois won't accept your articles of dissolution unless you've paid all franchise taxes, fees, and any associated interest.
Additionally, in Massachusetts, you'll need to file final state returns and notify the Massachusetts Department of Revenue (DOR) of your corporation's dissolution within 30 days after the dissolution is authorized. You can send notice to the Massachusetts DOR by:
For all states, on your final state and federal tax filing, you should check the box marked "Final Return" to indicate that you've dissolved your corporation.
After selling off ("liquidating") the corporation's assets and taking care of any debts and liabilities, including paying taxes and creditor claims, the corporation should distribute its remaining assets to its shareholders. Shareholders are entitled to an amount proportional to their stock.
For example, suppose Danny, Tucker, and Samantha are the three shareholders of Phantom Corp. Danny owns 50% of the corporation's shares, Tucker owns 30%, and Samantha owns 20%. Phantom Corp. has $100,000 of assets to distribute to its shareholders. According to those stock percentages, the corporation should distribute $50,000 to Danny, $30,000 to Tucker, and $20,000 to Samantha.
Make sure you close all your business bank accounts and credit lines and cancel any permits or licenses or anything else held in your business's name. You'll also want to notify your customers and vendors about your company's dissolution.
If your corporation is registered or qualified to do business in another state, you must file the necessary forms to terminate those registrations. Otherwise, you'll continue to be liable for annual fees and minimum business taxes in those states.
How you dissolve your corporation will depend on your corporation's articles of incorporation and bylaws as well as your state laws. While holding a shareholder vote and settling debts might seem like obvious steps to the dissolution process, the procedure for carrying out these steps could be complex. Pay special attention to notice requirements, when (or if) you need to receive tax clearance, and alternative voting methods.
You'll want to take the extra time and effort to close your business properly to avoid any future liabilities. If you need additional help, a business lawyer can walk you through the dissolution process, file any necessary forms, and draft dissolution notices.