There are quite a few steps to dissolving a for-profit corporation
There is a wealth of information on the Internet on how to form a company, but very little good information on how to dissolve a company. Given the number of requests I receive to dissolve a company, I thought it would be best to outline the appropriate steps. Remember that these steps are not comprehensive, may not apply to your specific situation, and are not to be considered an adequate substitute for consultation with a competent business attorney or business lawyer.
These steps describe how to dissolve a C-Corporation or S-Corporation. Next week, I will publish an article on how to dissolve a limited liability company (LLC), which is significantly easier and less costly than dissolving a corporation.
Please note the following potential problems with the steps I’m about to share with you:
- They were written in October, 2011, and are subject to change. Don’t blindly follow these steps. Research each step accordingly.
- They assume you are a closely-held S-Corp or C-Corp. If you are trying to dissolve a Limited Liability Company (LLC), these steps do NOT apply to you. If you have other shareholders, partners or owners, your steps could be different. Consult with a competent business attorney in your state.
- These steps are intended for companies located and registered within the State of New Mexico. If you are in a different state, the steps to dissolve your company will be different.
- These steps assume your business does not owe any debt, and there are no liens, mortgages, notes or other debts or liabilities owed to others or third parties. This also means these steps assume you are not in bankruptcy, and are conducting a purely voluntary dissolution. If you owe debts or other monies, or need to declare bankruptcy for the business, you MUST consult with a competent corporate bankruptcy attorney.
- These steps assume the company has commenced operations and/or issued shares. If this is NOT the case, look for “Articles of Dissolution” at the NM Secretary of State portal for For-Profit Corporations.
STEP 1: Understand your intentions, and the assumptions in these steps
If your company or business owes money, it may not be legally dissolved without paying its debts or without a court-order, or following a more rigorous process (depending on who you owe money to, and under what circumstances). A court-order usually involves a bankruptcy proceeding, and you should retain the appropriate corporate bankruptcy attorney to assist you. Be aware … don’t walk away from your debts without dissolving properly. If your company has any assets to speak of, and you improperly dispose of those assets, you could be guilty of commingling funds and/or fraud. If this happens, your debtors could potentially go after you personally and seek to make you personally liable for your company’s debts.
These steps assume you are voluntarily dissolving your company, and it owes no debts to any third-party. In order to do this, you must consult with the bylaws for your company, and follow the steps outlined in those bylaws for voluntary dissolution. Usually, the bylaws will indicate how to plan for and vote on dissolution, as well as the legal and proper way to distribute any remaining assets. If your bylaws are silent on voluntary dissolution, or you don’t actually have bylaws, then you should seriously consider consulting the advice of a New Mexico business lawyer to make sure you’re following the law properly.
This first step, then, is to follow your bylaws (or New Mexico law) to:
- Call a meeting and vote on voluntary dissolution
- Authorize the company, or its officer(s), to dissolve the company
- Provide notice, as appropriate or required, on the dissolution activities of the business
Your company will generally elect one of two methods to dissolve: By Written Consent of the Shareholders or Statement of Intent to Dissolve by Act of the Corporation. The first is easiest, if you have all shareholders available to sign and authorize the dissolution. The second is necessary, if some shareholders are unavailable to authorize (or you have at least one shareholder objecting). You will need to make sure you conduct the proper board meeting and/or shareholder meeting, obtain the appropriate number of votes, etc, to create a formal act to dissolve from the corporation (again, all dictated by your bylaws).
The NM SOS has a pretty helpful and useful form to help, with instructions. Access the “Articles of Dissolution” form at the NM Secretary of State portal for For-Profit Corporations.
STEP 2: File initial documents and cease operations
- Sign and notarize a Written Consent of the Shareholders to Dissolve. A sample MS Word document is located here (you will need to edit it properly).
- Send to the NM Secretary of State (NM SOS) the following:
- Written Consent of the Shareholders to Dissolve (edited sample located above);
- Statement of Intent to Dissolve by Written Consent of Shareholders (available from the Articles of Dissolution at the NM SOS);
- Duplicate copies of both documents above; and
- $50 filing fee, in a check in the name of “NMSOS”.
- Cease business activities, except to take the proper steps to liquidate its affairs and distribute its assets, as per your bylaws
- Properly fill out and send IRS Form 966, Corporate Dissolution or Liquidation, within 30 days
- Properly fill out and send the following forms to the New Mexico Taxation and Revenue Department:
- ACD-31096, Tax Clearance Request. This is a request for the Certificate of No Tax Due, which the NM Taxation & Rev Department will send to you.
- ACD-31015, Business Tax Registration, and read the instructions.
Specifically, make sure to fill up Boxes 2 (Update) and 12a, and all other relevant fields.
- Properly fill out and send the following form to the New Mexico Department of Labor:
- Tax Clearance Request form, which is a request for the Certificate of Compliance, which will be sent to you by the NM Dept. of Labor.
- Properly fill out and send the following form to the NM SOS (in a separate envelope from the above mailing):
- Letter of Clearance (Available within the Articles of Dissolution at the NM SOS).
Step 3: Submit Articles of Dissolution, once you receive all the supporting documentation
Now, you must wait until you receive documents back from the NM SOS, NM Taxation and Revenue Department, and the NM Department of Labor. Once you receive all the required documents back, you must then send it all to the NM SOS.
- Make copies of everything, and send the following to the NM SOS:
- Articles of Dissolution, with a duplicate copy (available from the Articles of Dissolution at the NM SOS);
- Certificate of No Tax Due (received from Taxation and Revenue Dept);
- Certificate of Compliance (received from Department of Labor);
- Letter of Clearance (received from the NM SOS); and
- $50 filing fee, paid by check in the name of “NM SOS”.
Step 4: Submit Final Taxes
Make sure you consult with your tax adviser, or CPA, as appropriate. Timing is important. You MUST file taxes, even if you cease operations, for the year you dissolve your business. This means you must file regular and normal corporate taxes the year following your dissolution, for the previous tax year. For example, let’s assume your tax year is the calendar year. If you dissolve on December 31st, you must file your corporate taxes by April 15th the following year. If you instead dissolve January 5th, you must file taxes two more times: The upcoming April 15th for the previous tax year, and the April 15th the following year, for the 5 days of operations this year.
- Consult with your tax adviser or CPA, as appropriate
- File final tax returns, and make sure your accountant knows to indicate “Final Return” in the appropriate place on ALL tax forms, as well as any K-1’s.
- Include IRS Form 8594 (instructions) and IRS Form 4797 (instructions), as appropriate
- Close your business account with the IRS. Write to them at: Internal Revenue Service, Cincinnati, Ohio 45999 and state the reason you wish to close your account. If you have a copy of the EIN Assignment Notice that was issued when your EIN was assigned, include that when you write. Otherwise, be sure to include the complete legal name of the entity, the EIN, and the former business address.
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This was very helpful -I tried finding the Certificate of No Tax due and now know why i couldn’t find it. Thanks so much