The dissolution of a company is a final act that sets a small business on the course for termination. The dissolution of a business usually involves the filing of articles of dissolution or some other document with a state's secretary of state or department of corporations. Although dissolution terminates the legal status of a company, the company must still wind down, liquidate its assets and take care of other matters related to ending its existence.
Liquidation of Assets
The liquidation of assets is one of the first activities that must occur after a small business dissolves. Liquidation refers to the sale or auction of the physical and intangible assets of the business. For example, the small business must sell all of its office furniture, equipment and supplies. Intangible assets might include patents or stock. These assets will be used to pay off any outstanding debts of the company and, if any amount is remaining, to pay shareholders.
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Payment of Debts
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A small business must pay all of its debts before completely winding down. This includes the payment of any outstanding governmental fees, in addition to debts owed to individual creditors, such as an inventory supplier. The small business may send out notices to its potential creditors that the company has dissolved and urge them to send notice of any claims. Giving notice of the dissolution of the business also prevents the accrual of any further debts.
Taxes
The dissolved business must file its final federal and state tax returns. The owners of the business may choose to immediately file the tax return. Any tax liability or penalties must be paid before final termination of the corporation. A small business must be sure to include all of the relevant tax schedules within its tax return, such as reports of capital gains and losses.
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Shareholder Distribution
The final act of a dissolved company is the distribution of any remaining assets to shareholders. A shareholder refers to any entity or person that has an ownership interest in the company. The distribution to shareholders includes any cash in bank accounts and any cash obtained from the liquidation of the company's assets. The payment to the company's owners must be made on a pro rata basis. This means that if you own 50 percent of a company and $100,000 is being distributed, you will receive $50,000.
References
- "Business Organizations and Corporate Law"; Neal R. Bevans; 2006
- "Business Associations, Cases and Materials on Agency, Partnerships, and Corporations"; William A. Klein; 2009
