Companies are dissolved for a myriad number of reasons, from the failure of the business, something which even the great enterprises and entrepreneurs of the world have faced; to a shift in focus on the part of the business, which may not necessarily signal that the business itself was bad. Whatever the reasons for dissolving a business, such as your sedation dentistry business, the decision to do so is a grave one which should only be taken with the due consideration to all pertinent facts and after consulting your accountants and lawyers. If having done all this, you find that you must proceed with the closure of a business, this article will explain to you the essentials of what you must do.
The dissolution of a company refers to its removal or “striking off” from the company register. This step is important to ensure that the business is no longer liable for future annual Franchise Tax payments and Registered Agent Fees.
There is a fine line that separates dissolution and liquidation and this often leads to a colloquial switching off terms as a result of a misunderstanding of what both terms imply. That thin line has huge tax implications so we have to be clear about what distinguishes the two. Both dissolution and liquidation are subject to the state’s business and corporate laws and the company’s organizational documents. Dissolution ends the company’s legal existence. After dissolution, however, the business entities survive in order to wind up their affairs, settle debts and distribute the residual to shareholders. Dissolution kick starts the winding up of a company’s affairs. Liquidation on the other hand, occurs when a distressed company cannot find an acquirer or a firm to merge with or successor options. Liquidation involves selling company assets or converting them into cash or cash equivalents so that creditors can be paid off and the residual given to shareholders. Distribution of cash and cash equivalents is handled according to priority of claims according to the U.S. Bankruptcy Code: creditors, debt security owners, preferred shareholders and finally common shareholders.
The process of dissolving a company begins with a meeting of the company’s board of directors wherein they propose what is known as a “Termination Proposal”, which is a resolution for closing the business. A vote must be carried out, and the minutes of the meeting taken down and filed with the company records. The termination proposal must then be brought before the shareholders and passed by a majority of them. LLCs may opt to issue a Member Resolution in which the necessary quorum of members sign up.
The second step is to file Articles of Dissolution with the state’s secretary of state. Each state has different procedures and the complexity ranges from filling in a single form to a more involved process.
Once the state has granted your application to dissolve the company, the company’s assets must be distributed to all its shareholders (or members of LLC) and all its financial accounts closed.
All directors and shareholders (or members of LLC) must be notified of the proposed dissolution meeting. Notification must clearly state what the purpose of the meeting is.
Thereupon, the company will be stricken off the company register and its existence ended as per the date on the Certificate of Dissolution when it is filed and approved by the secretary of state.
The Certificate of Dissolution can only be signed by a duly authorized person, whether they are a director, officer, director, or attorney-in-fact. This person’s name and title must be printed alongside their signature.