Winding Up and Dissolving Your Company: A Guide for Business Owners

As a business owner, it’s important to know how to properly wind up and dissolve your company. Whether you’re closing your business due to retirement, financial difficulties, or other reasons, the process of dissolving a company can be complex and time-consuming. In this article, we’ll provide an overview of the steps involved in winding up and dissolving your company.

Step 1: Obtain Stakeholder Consent

In order to dissolve a corporation, you will need to obtain the consent of the shareholders and the board of directors.  To dissolve an LLC, the consent of the members is required.  The stakeholders should also approve a plan of liquidation, which outlines the steps taken to wind up the company’s affairs and distribute its assets.

Step 2:  File Any Required Preliminary Dissolution Documents

Depending on your situation and the state in which the company has been formed, you may need to file preliminary dissolution documents.  In California, a preliminary filing is required for a corporation if fewer than all of the shareholders voted for dissolution.  California has a similar requirement for LLCs.

Step 3: Notify Creditors and Other Stakeholders

You’ll need to notify all creditors and other stakeholders of the company’s intention to dissolve. 

Step 4: Terminate Employees, Cancel Contracts and Licenses

The company must cancel any remaining contracts and licenses, including business licenses, leases, and permits.  It must also terminate its employees.

Step 5:  Liquidate Assets.

The company will generally need to liquidate (sell) its assets before dissolution, unless it plans to distribute the assets to its stakeholders and is otherwise able to pay its debts and obligations.

Step 6: Pay Off Outstanding Debts and Liabilities

Before any assets can be distributed to equity holders, all outstanding debts and liabilities must be paid off. This includes paying off any outstanding loans, leases, and other obligations. If the company is unable to pay off all of its debts and liabilities, it may need to file for bankruptcy.

Step 7: Close Bank Accounts 

The company must close all bank accounts and credit lines associated with the business.

Step 8: Distribute Assets to Equity Holders

Once all debts and liabilities have been paid off, any remaining assets can be distributed to shareholders. This may include cash, stocks, and other assets. The distribution of assets should be made in accordance with the plan of liquidation and any applicable laws and regulations.

Step 9: File Certificate of Dissolution

After all assets have been distributed, you’ll need to file a certificate of dissolution with the state in which the company was incorporated. This will formally dissolve the company and remove it from the state’s records.  Confusingly, a California LLC must file a “Certificate of Cancellation” to formally dissolve the company—for reasons best known to the legislature, a “Certificate of Dissolution” will formally dissolve a corporation but not an LLC.

Step 10:  Final Tax Returns

The company must file its final tax returns and pay any outstanding taxes owed to federal, state, and local tax authorities.  You will need to make arrangements with an accountant to handle this responsibility.

Important Considerations

Winding up and dissolving a company can be a complex process, and there are several important considerations to keep in mind:

  1. Legal Obligations: When dissolving a company, it’s important to comply with all legal obligations and regulations. This includes filing all necessary forms and documents with the appropriate government agencies and notifying all creditors and other stakeholders.
  2. Tax Obligations: Dissolving a company can have significant tax implications. It’s important to consult with a tax professional to ensure that all tax obligations are met and that you’re taking advantage of any available tax benefits.
  3. Employee Considerations: If you have employees, you’ll need to ensure that you comply with all applicable labor laws and regulations. This may include providing notice of termination, paying final wages, and providing any required benefits.
  4. Record keeping: Even after a company has been dissolved, it’s important to maintain accurate records of all business transactions and activities. This can help to protect you from future legal or financial issues.

In conclusion, winding up and dissolving a company can be a complex and time-consuming process, but it’s an important step for any business owner who is looking to retire or close their business. By following the steps outlined in this article and consulting with legal and financial professionals, you can ensure that the process is compliant and complete.