Why Corporate Dissolution Might Be the Best Decision Sometimes

by Pakhnyushchyyyayimages.com

Partnerships are amongst the oldest forms of business and have existed due to the mutual benefit that it provides to all parties involved. An ideal partnership is based on mutual terms and is synergistic as well. Such symbiotic partnerships help launch a business which might not have been possible without the partnership.

There are state laws in place that define the rights, responsibilities as well as roles of all parties involved in the business, whether it is a limited liability company or a corporation. Similarly, the state also dictates the terms of closing a business. Even though the economy seems to show signs of improvement, sometimes the best and safest option is to close down and this may get tricky with the parties involved.

Making a decision about dissolution of your corporation can be hard. Parties may choose to dissolve the business for various reasons. Mostly, it’s due to the business being unsuccessful, not generating the expected benefits or due to sentimental reasons. Once you take that decision, it’s important you do it right and see it through.

Bankruptcy & Dissolution

Filing for bankruptcy is not an appropriate solution for a company not being able to roll in cash, resulting in an income statement problem. People often mix bankruptcy with dissolving the corporation. Filing under the Bankruptcy Court involves a proper court proceeding, which naturally means hiring lawyers and consequently involves the expenditure of time and money.

Bankruptcies result in liquidation or reorganization of the company. When a business is at the brink of shutting down, filling a bankruptcy is unnecessary with all the expenses of bankruptcy lawyers. Additionally, state dissolutions are more private affairs whereas bankruptcies involve total disclosure of financial information and most business owners would not be okay with that.

Bankruptcies can also protect the creditors from debtors through a biased preference of favored creditors by providing the trustee with extensive powers to unwind prepetition actions. However, in the case of dissolution, it is much more difficult for the creditors to acquire extensive information on the subjective dissolving of company’s finances.

Filing a bankruptcy for your business incorporation might not be the best option for the shareholders because increased administrative costs associated with bankruptcies and creditors necessarily being paid in full before equity receiving distribution further bleaks the chances of shareholders to receive their share of distribution. Dissolutions under the state low also allow the surplus to be returned to the respective shareholders.

Let’s check out the steps involved in dissolving your company

The laws of corporate dissolution can vary from state to state. However, all states recognize corporate dissolution as a state sanctioned termination of the corporate entity.

  1. Meeting with board of directors: The purpose of the meeting is to acquire votes from all members. Minutes of this meeting show that the majority agreed on the decision of dissolution.
  2. Filing dissolution: Your Company’s agent shall complete the required paperwork so you can receive your certificate of dissolution. Once this step is achieved, all branches of the company in other states will automatically be dissolved.
  3. Notifying IRS: The IRS will grant you tax clearance, but you must make sure that all due state taxes are paid. The IRS’s clearance will be needed by the secretary of state to formalize the dissolution.


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