What are the Articles of Dissolution?
Whenever a Corporation or LLC is an active entity at the Secretary of State, it is in existence and has specific obligations to that state (such as filing Annual Reports, paying state fees, and paying taxes). Even if the company is not actually doing any business at all, as long as the company is filed with the state, it is considered to be in existence. That's where the Articles of Dissolution come into play. By filing Articles of Dissolution (sometimes referred to as Certificate of Dissolution or Certificate of Cancellation, or something similar ), you are officially notifing the Secretary of State that the business is closed, freeing you from being required to meet these obligations in the future.
What should I do before I dissolve my business?
There are a few other important that you should consider when you are closing a business. If your business is a corporation, the shareholders must approve the decision to file a dissolution before you can close your business. These steps are sometimes outlined in the organizational documents created when the business was formed, including the articles of incorporation / organization or the corporate bylaws. Typically, the directors of the corporation should draft and approve a resolution to dissolve the business and document the minutes of a meeting. Then the shareholders would vote on this approved resolution. In the case of an LLC, the members must agree and grant this approval.
In some states you may be required to get a tax clearance / consent to dissolution from the state. This is simply a verification from the state that your business is in good standing and has fulfilled its tax obligations.
What else will I need to do when I close my business?
When closing your business, you'll want to be sure to fulfill all your business' tax obligations first and foremost. There is a helpful list you can work from on the IRS closing a business checklist to be sure that you meet your IRS requirements. You'll also want to pay off any other outstanding debts, notify your creditors (suppliers, lenders etc. ) and close your business' bank accounts. If you can't settle a debt due to financial hardship, you will need to speak to your lender directly for next steps.
If you are registered to do business in another / other states, (or if you filed a foreign qualification), you’ll also want to file a form to withdraw from the state. If you forget this step, you will still be liable for any annual fees or minimum taxes to those states.
You will also need to notify and pay your employees. While this can be one of the most difficult steps for a business owner, providing your employees with as much notice as possible is the best practice. Plan on giving your employees their final paychecks on their last day of work, including any unpaid vacation days (if required by the state) or final bonuses.
After you have approval from the state to dissolve and have cleared all other requirements, you will want to liquidate and distribute the remaining businesses assets to its shareholders / members based on their percentage of ownership, and report these distributions to the IRS.