Articles

Dissolving a Business


As part of restructuring a business, we are often called upon to dissolve an entity, including often one or more subsidiaries of a parent company. I recently presented on Dissolving a Business during a continuing education seminar entitled Representing Small Businesses. I have adapted my presentation for this article.

Dissolution of a business entity is a very formal, structured and statutorily guided process. It is also almost exclusively a state law matter, and so procedures from the state of incorporation must be followed.

Most states have published guidance and statutes that walk the company through exactly how to handle a dissolution, including notification of creditors. Utah has very detailed guidance at Title 16, Chapter 10a of the Utah Revised Business Corporation Act, and references in this article are to applicable Utah statutes.

Formalizing the Decision to Dissolve

For corporations, in most jurisdictions, the decision to dissolve the corporation must be approved by both the Board of Directors and the Shareholders of the company. (Utah 15-10a-1402).

Filing Required Documents with Local, State and Federal Agencies

Articles of Dissolution are prepared and filed with the Secretary of State.

A dissolved corporation actually stays in existence, but only for the purpose of winding up and liquidating its business and affairs. (Utah 16-10a-1405).

A corporation can revoke its dissolution within 120 days after the effective date of the dissolution.

Notifying any and all Creditors

At any time after the effective date of the dissolution, the corporation can dispose of known claims by giving written notice as follows (UT 16-10a-1406):

(a) describe the information that must be included in a claim;

(b) provide an address to which written notice of any claim must be given to the corporation;

(c) state the deadline, which may not be fewer than 120 days after the effective date of the notice, by which the dissolved corporation must receive the claim; and

(d) state that unless sooner barred by any other state statute limiting actions, the claim will be barred if not received by the deadline.

There is also a process whereby claims can be disposed of by publication.

Distributing Assets Efficiently

All the assets of the corporation should be accumulated, liquidated, and the proceeds therefrom distributed to (1) the corporate creditors, and then to (2) corporate shareholders.

Filing IRS Forms and Reporting Requirements

Dissolving corporations should file a Form 966 with the IRS within 30 days after the plan of dissolution is adopted. A corporation then typically files a “final” tax return at the end of the applicable year in which it dissolved.

Sample Letter to Creditors – No Distribution

 

[Date]

Via U.S. First Class Mail

 

«Company»

«Address»

«City», «State» «Zip»

Re: Dissolution and Winding Up of [insert name]

Dear Sir or Madam:

You are receiving this letter because you are a creditor of [insert name] (the “Company”). The Company ceased operations on December 31, 2008, and filed a Certificate of Dissolution with the Nevada Secretary of State on December 3, 2012. This letter serves as notice of the dissolution of the Company.

Under normal circumstances, the Company would liquidate its assets and distribute them pro rata to its creditors. However, the Company does not have any assets to distribute. As a result, it is not necessary to send or file a claim to it or file a claim against the Company for amounts you are owed. Unfortunately, there will be no distributions.

Thank you for your time and attention to this matter.

Sincerely,

 

 

Sample Letter to Creditors – Pro-Rata Distribution of Assets

[Date]

Via U.S. First Class Mail

«Company»

«Address»

«City», «State» «Zip»

Re: Dissolution and Winding Up of [insert name]

Dear Sir or Madam:

You are receiving this letter because you are a creditor of [insert name] (the “Company”). The Company ceased operations on December 31, 2008, and filed a Certificate of Dissolution with the Nevada Secretary of State on December 3, 2012. This letter serves as notice of the dissolution of the Company.

Over the next 60 days, under the direction of its Board of Directors, the Company will be liquidating its assets and distributing them in accordance with the applicable corporate statute. We anticipate that the total assets will be less than the total amount owed to all Company creditors, and thus you will be receiving a pro-rata amount of your claim. In order to verify and lodge your claim, please submit to us, in writing, the amount of your claim, a copy of the contract under which the claim is made, and the two most recent invoices no later than [date]. You will receive your pro-rata payment, along with an accounting of the Company’s assets and liabilities, within thirty (30) days thereafter.

Thank you for your time and attention to this matter.

Sincerely,

 

Useful Links

California Certificate of Election to Wind Up and Dissolve

California LLC Certificate of Dissolution

Utah Corporation Articles of Dissolution

Utah LLC Articles of Dissolution