Our attorneys at the Coover Law Firm of Columbia, Maryland understand all of the legalities of the stages of a business. We are prepared to provide thorough, forward thinking representation needed when preparing to wind up or dissolve a business. For some business owners, the time comes when they must end operations and dissolve their business. Dissolution is the last stage of liquidation, the process by which a company is brought to an end, and the assets and property of the company redistributed. It’s a stressful time and a multi-step process.
Dissolution of a corporation can be triggered by several events:
Voluntarily Dissolution – Filing a notice of dissolution with the Secretary of State or via court order after a vote of the shareholders.
Involuntarily Dissolution – IRS takes action as a result of failure to pay taxes.
During dissolution, corporate assets are liquidated and distributions are made to pay off corporate debts.
How Is a Business Dissolved?
The way that a business is dissolved depends on the type of business in question. A business can exist as three different types of entities, which are:
- Sole proprietorships
A sole proprietorship lasts as long as the owner desires it to or until the sole proprietor’s death. Upon death, the sole proprietorship ceases to exist, with its assets and liabilities becoming part of the sole proprietor’s estate.
In partnerships, the outcome is the same unless the partnership agreement contains a method by which the deceased partner’s share may be bought out by the other partner(s).
A corporation may be dissolved only if its shareholders vote to do so. Upon a shareholder’s death, his shares become part of his estate and may pass on to his heirs. Company owners must approve the dissolution of the business. With corporations, the shareholders must approve the action; with limited liability companies (LLCs), members grant approval. The bylaws of a corporation and the LLC operating agreement ideally outline the dissolution process. Corporate formalities should require the board of directors to draft and approve the resolution to dissolve. Shareholders then vote on the director-approved resolution. Both actions should be documented and placed in the corporate record book. While LLCs are not subject to the same formalities, documenting the decision and member approval is recommended.
What Can I Do to Prepare for a Business Dissolution?
Certain steps need to be taken to ensure that your assets will be protected from any liability that could occur when your business is dissolved. The following is a short list which outlines some of your options:
- Check to see if you need to continue to purchase insurance to cover any product liability issues
- If you are planning to sell off inventory, you may have to file a bulk sale report
- If you are planning to lay off any employees, you may be required to give notice and provide insurance for them
- Create a list of and review all contracts that are open
- Settle any lease issues
- Prepare a list of creditors for notice requirements
- Set a deadline for filing claims against the business by creditors
Do I Need Special Considerations for Taxes?
Yes, even though the business is being dissolved, tax obligations do not immediately cease. You must follow the procedure for business closing with the IRS as well as Maryland state and local taxing entities. Also you must complete your payroll reporting obligations if you have employees to avoid penalty.
Do I Need to Consult a Lawyer for My Business Dissolution?
Yes. The dissolution of a business has the potential to generate multiple liabilities. The attorneys of the Coover Law Firm will assist you in the protection your interests and ensuring that the formalities of Maryland State and Federal regulations have been satisfied. We have the capacity to deal with these liabilities as they arise and will represent your interests diligently and expertly. Our business dissolution attorneys can also help you sort through your remaining contracts and guide you appropriately. The Coover Firm can also aid you through the real estate sales process, if you sell the business property.
For any business, commercial or corporate legal matter in Columbia, Maryland and surrounding areas, call the Coover Law Firm at 410-995-1100, toll free at 866-425-9555, or contact the firm online to discuss scheduling an appointment with our attorneys.