Dissolving A Business

• Published date: 29 November 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: The Green Law Group
• Author: Mr Mike M. Khalilpour

The past two years have been dominated by the COVID-19 pandemic in multiple ways. While we have so far avoided a significant economic downturn, some businesses have been severely challenged by new regulatory requirements and shifting consumer patterns.

As 2021 draws to a close, you may have reached the conclusion that your business prospects for 2022 will not meet your expectations, financially or otherwise. Closing your business can be a difficult choice to make, and businesses dissolve for a variety of reasons, and not all of them are necessarily negative. Properly dissolving the business will ensure that when you do start anew, it will be with a clean slate.

What is Dissolution?

Dissolution is a legal process that terminates a business's existence. If a business is not properly dissolved, it continues to exist as a legal entity under state law. This means that it will be remain subject to corporation or LLC filing requirements, including with state and federal agencies such as the secretary of state, franchise tax board, internal revenue service, in addition to state and local filing requirements such as licensing and permits.

Simply "ceasing operations" and failing to meet these continuing obligations can result in fines, taxes, penalties and potential personal liability for those obligations. Dissolution is a multi-step process involving the filing of dissolution documents with the various local, state, and federal agencies, in addition to internal paperwork with respect to the businesses' other owners and the businesses' creditors.

Step 1 - Ownership Approval

A corporate or LLC dissolution generally requires that the shareholders or members approve the dissolution. Typically corporate bylaws or the LLC's operating agreement spells out the process for dissolving, including shareholder and member approvals needed, and the manner and method by which to notice any meetings of the shareholders, board of directors and/or members to accomplish this first step. Unanimity is not always required. For instance, California Corporation Code '1900 provides that a corporation may elect to wind up and dissolve voluntarily on the vote of at least 50% of the outstanding shares.

Step 2 - Prepare Dissolution Documents and Give Notice

Once the dissolution has been approved, either unanimously or otherwise, the requisite forms need to be filed with the California Secretary of State and any other state where your corporation or LLC is qualified to transact business. In...