How to Shut Down a Corporation

May 30th, 2009 by Mike

It is known that the business world must constantly change as the demands and needs of the public change. In order to keep up in an ever changing economy, the business must adapt to those changes or become obsolete and unfortunately end its operations. Although the corporate business structure is one of the most complex entities to form, it is even more complex to shut down or dissolve. In this article we will talk about how to shut down a corporation and the basic steps one needs to take in order to do it properly.

When a corporation comes to the end of its useful life, how does one go about shutting it down? Since the corporation is considered a separate legal entity and there are multiple parties involved in its structure and operations, the process to shut down the corporation begins with a meeting of the board of directors. The board of directors must hold a formal meeting and draw up a resolution to dissolve the corporation. This meeting must be documented in the corporate minutes and kept in the records. A vote of the directors and the shareholders then needs to take place, usually a two-third majority vote is needed to accomplish this, but can vary according to the corporation.

Once the majority vote has been taken to shut down the corporation, depending on the state in which the business is incorporated, an Article of Dissolution needs to be filed with the secretary of state. Once the state has approved the dissolution of the corporation, the assets of the corporation can then be distributed among the shareholders.

Remember if the proper steps are not taken to shut down a corporation, since it is considered a separate legal entity, it is still legally liable and obligated to file taxes and other business documents and construct an annual report. It is also legally responsible for any products still on the market.

It is recommended that one seek professional legal counsel in the dissolution of a corporation as each state varies in the laws and processes of shutting down a corporation.