Just as there are good reasons and specific procedures for creating a corporation in Texas, there are good reasons and specific procedures for dissolving corporations as well. Whether it’s due to retirement, a falling out with business partners, or financial issues, corporate dissolution is sometimes the best option. However, failing to follow state requirements to dissolve a business may create a messy and costly situation.
Corporate dissolution is a multi-step process outlined on SOSDirect. An important first step to dissolution is the accurate valuation of the corporation. Calculating the value of assets such as inventory, accounts receivable, real estate, and equipment allows shareholders to evaluate the ratio of debts to assets. Given the difficulty of accurate valuation and the documentation required, corporations often turn to outside valuation experts to help with this phase.
There are two options to formally initiate the dissolution: Either the board of directors adopts a resolution which the shareholders then must approve, or the shareholders unanimously consent to dissolution. If the board of directors presents a resolution, Chapter 21 of the Business Organization Code states that shareholders need no less than ten days’ notice of the vote, and that the resolution must pass with a two-thirds majority vote. Smaller businesses typically rely on the second option of the shareholders’ unanimous vote, often in the form of written consent approving the dissolution.
Once the shareholders agree to dissolve the business, it must follow its own bylaws as well as the Texas Business Organization Code to tie up loose ends. These actions include
- No longer conducting corporate business;
- Informing every claimant of the plans to dissolve the corporation;
- Settling lawsuits, creditors’ claims, and other debts;
- Selling corporate property;
- Canceling any business permits, licenses, registrations, and certificates;
- Closing corporate bank accounts;
- Notifying the IRS and filing a final tax return;
- Canceling the corporate Employment Identification Number (EIN); and
- Distributing remaining assets among shareholders.
Completing and filing the Certificate of Termination with the Texas Secretary of State is another critical component of corporate dissolution. The format for the Certificate of Termination will vary depending on the type of business involved. Most corporate dissolutions also require a Certificate of account Status for Dissolution/Termination. This certificate verifies that the corporation has paid all taxes and debts. Completing the required paperwork for corporate dissolution is difficult and detailed. Many corporate dissolutions are rejected by the Texas Secretary of State, for example, because corporations submit the wrong certificate type or include incorrect documentation.
Timeframe for Dissolution
Several different factors contribute to the length of time required to dissolve a corporation, including the size of the company and the level of cooperation among shareholders. The process of distributing assets, closing accounts, and filing paperwork may vary significantly as well. Once the paperwork is completed and filed, the Certificate of Account Status is processed within a month or two. The Certificate of Termination takes about 3-5 business days.
After the corporation completes and files the appropriate paperwork, it must pay the filing fee of $40 and wait to receive word from the Secretary of State either granting or rejecting the corporate dissolution.
Corporate dissolution may be a necessary process, but it is not an easy one. Working with an experienced business attorney will ensure that the process is done accurately and efficiently, making a complicated process much easier for everyone involved.
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