Articles of Dissolution, what is it, and why is it important?

Exiting a business, especially if you have not planned to, can be a stressful experience. If exiting the business is the path you decide to take, know that you do not have to go through the process by yourself. ExitGuide is here to explain “the articles of dissolution”  and why it is necessary when exiting a business.

Suppose you have decided to close your corporation or LLC. In that case, it is crucial to file articles of dissolution to protect yourself from future liability for taxes, fees, tax returns, annual reports, and lawsuits.

In brief, articles of dissolution are like a death certificate for a business, whereas articles of incorporation are like the birth of the business. When you file articles of dissolution, this will formally end your business entity’s existence.

When you close a company, if you do not file articles of dissolution, the state will be under the impression that you are still doing business and continue to expect you to file tax returns and other reports associated with the business. If you don’t file the tax returns and other required paperwork, you will likely get hit with late fees and penalties.  

The articles of dissolution also give notice to creditors that your business has closed, and you are no longer liable for debts.

Sole Proprietorship 

If your business structure is a sole proprietorship, you do not need to file articles of dissolution.  Instead, you would simply stop completing the Schedule C form (Profit or Loss from Business) with your tax return. That said, it is a good idea to notify suppliers or partners that you have worked with so they are aware of the change.

General Partnership

In some states, you must formally dissolve a partnership if you filed paperwork with the state to establish the partnership. You can check with the Secretary of State’s office in your state for dissolution procedures for partnership. You can look up the contact information for the Secretary of State office in your state HERE.

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Following are the steps to formally dissolve an LLC, S or C Corporation.

Vote to dissolve

It does not matter how your business is organized. It is always wise to take a formal vote on dissolving the business and keep a written record of the vote. 

  • Dissolving a corporation

Refer to the company bylaws for:

  • Who must vote
  • How the vote must be conducted
  • The number of votes needed to approve the dissolution
  • Document the vote in a resolution that you keep with the corporate records
  • Dissolving an LLC
  • Consult your LLC operating agreement for voting procedure
  • If there is no formal operating agreement, follow the requirements in your state’s LLC laws

Notify Creditors

Notifying your creditors lets them know that you’re closing and advises them of the deadline to submit claims.. State law determines the deadline to submit claims.  In most states, it is between 90 and 180 days after the date of the notice.  Your notice should also let your creditors know that any claims received after the deadline are barred.

Take care of taxes and licenses

For taxes, file all final federal, state and local tax returns.  For licenses, if you have a business license or reseller’s permit, you will want to contact the applicable agencies to let them know that you are no longer doing business. 

Prepare Articles of Dissolution

You can prepare articles of dissolution by completing the appropriate form on the Secretary of State website for your state. In most states, it is the Secretary of State’s office; however, the agency may be different in some states. For example, in the state of Michigan, the agency name is Licensing and Regulatory Affairs/The Corporations Division. Check your state’s requirements and consider engaging a paralegal to guide you through the process. 

File Articles of Dissolution

To complete your corporation or LLC dissolution, you must file the articles of dissolution with the Secretary of State’s office in the state where the business was formed. If the dissolutions agency in your state is not the Secretary of State, you will need to find out with which agency to file the article of dissolution. Procedures to file articles of dissolution vary from state to state.  Check with your state for the proper procedure.

Wind up other miscellaneous matters

After the taxes have been paid, you can begin paying other creditors.  After everyone has been paid, do the following:

  • Close the business bank account
  • Distribute leftover funds to the business owners
  • File final federal and state tax returns
  • Cancel your business’s Employer Identification Number (EIN)

If you have questions about the process, hiring a CPA or paralegal may provide peace of mind. Be sure to look for someone who has experience with the dissolution filing process in your state. 

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Final Thought

Formally filing articles of dissolution protects you and other owners of the business from future liability when exiting a business.  As an extra layer of protection, be sure to notify taxing authorities, pay your taxes, then notify and pay other creditors before you shut the doors for good.