How to Close a US Corporation
I don't know about you, but I don't like starting something if I don't know how to finish it. In case of starting a corporation there are at least two happy endings: you get acquired or keep the company and maybe place an IPO. But you should also be concerned about the case in which the business doesn't work and you have to close the company. This is something nobody seems to like talking about, but I think it's really important to know what this case looks like. I've dissolved two US companies myself, so I've decided to write this post about the subject. The post refers to the particular case in which the company is registered in Delaware. However, the dissolution process is very similar in all states.
Decide to Close the Corporation
First you have to formally decide to close the company. If you have a corporation this means meeting with all shareholders and presenting a vote on the dissolution of corporation. Depending on the bylaws of the corporation, the dissolution vote may require simply a majority or it may require a specific majority such as two-thirds or a unanimous vote of the shareholders to dissolve the corporation. As usual, it’s very important to keep record of the final vote for dissolution in the minutes of the shareholder meeting. Otherwise, if you have trouble with creditors, a court may decide that you have pierced your corporate veil, which means that your company looses its limited liability status and therefore, that creditors can go against your personal assets (e.g., your money and house).
The Process
Appoint an officer to wind up company affairs. Before a corporation can dissolve, Delaware law requires the company to pay all outstanding obligations, settle all lawsuits, make provisions for any future claims that may be known to the company, and pay off all shareholders who are creditors. Once all liabilities are satisfied, the officer should distribute all remaining assets of the company to shareholders in proportion to their ownership share. In particular, you should pay close attention to the following two procedures:
Cancel Registrations, Permits, Licenses, and Business Names
To protect your finances and reputation, ensure that you cancel all licenses and permits that you will no longer need. If you have registered under an assumed, or trade name, other than your own name then you can cancel that business name registration with your local government.
Comply with Employment and Labor Laws
Ensure that final paychecks are paid to employees by their last day of work, or soon after, according to your state laws. Your state may also require you to pay employees for their unused leave. The Worker Adjustment and Retraining Notification Act (WARN) protects workers, their families, and communities by requiring employers with 100 or more employees to provide at least 60 calendar days advance written notice of the closing. Depending on location, small businesses may need to comply with worker protection rules as well. Many states have enacted legislation similar to WARN requiring businesses with less than 100 employees to comply, so check this out with your state.ç
Pay Franchise Taxes
Contact the state of Delaware and ask for your Franchise Tax Form:
Contact the Franchise Tax Department at 302-739-3073 and select option 3.
Alternatively, if you need to contact them after hours you may email them at
Your franchise tax form, it will look like this:
To pay this tax, you can make an electronic payment, or send a money order to
Delaware Division of Corporations
401 Federal Street, Suite 4
Dover, DE 19901
302-739-3073 option 3
302-739-5831 Fax
for the amount of taxes due. I recommend you to use Delaware's Franchise Tax Calculator to figure out how much you have to pay, and which method is the best for you (Authorized Shares Method vs. Assumed Par Value Capital Method).
File Certificate of Dissolution with Department of State
You can get this certificate here. You can find a copy in the extra material from this lecture.
As you’ll see, the PDF actually contains different certificates of dissolution, which cost from 10 to 204 Dollars.
The 10-Dollar certificate of dissolution is called the Short-Form Certificate of Dissolution and you
can use it if your corporation:
has no assets and has stopped doing business
for each year since its incorporation in Delaware, it has been required to pay only the minimum state franchise tax; and
it has paid all franchise taxes and fees due through the end of the year in which your certificate
of dissolution will be filed.
In order to file the certificate of dissolution you must present a Certificate Memo. You can find one
exemplar in the extra material from this lecture. In this Certificate Memo you specify, among others, the method of payment for the fee of the certificate of dissolution.
Get the Certificate Memo, the Certificate of Dissolution (don't forget to add the incorporation date), and Proof of Payment of your Franchise Tax, put them in an envelope and send a registered email to
Delaware Division of Corporations
401 Federal Street, Suite 4
Dover, DE 19901
302-739-3073 option 3
302-739-5831 Fax
The Internal Revenue Service
When you are done with Delaware (our your state of incorporation), you’ll get a document that says that your corporation has been dissolved. With a copy of this document, send 966 form to IRS within 30 days. Also, file the final income tax forms for the corporation for the final year of operation. Check the box on the tax forms to indicate that this is the corporation’s final income tax return. After that, you are done!
The Online Course
Due to the large number of interested people about this subject, I have created an online course that teaches you how to easily create (and dissolve) a US Company from the comfort of your home, be it in the US or elsewhere, avoiding expensive legal fees.
The course contains 37 lectures with videos, instructions, quizzes and checklists to help you navigate through the process of setting up your US company, avoiding common pitfalls inexperienced entrepreneurs usually fall into. You will also find templates for all the necessary legal documents, which you can freely download and use right away.
As a special thank to my blog readers, I've created 100 coupons to access this course with a 50% discount. Click on the link below to redeem your discount code before I run out of invitations!
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Enjoy creating your US company! http://ift.tt/1zE9K6m