Q:
I'm preparing to close the doors on my S corporation. What are
the legal steps I need to take?
A:
When closing a business that involved registration or formation
through the state government, it's important to file the right
paperwork and perform the right steps in closing the business. Be
sure to follow these steps:
1. Read your formation documents. Review your
business's legal formation documents to see if your business
has set forth any procedures for its termination. For a
corporation, you would look in the articles and bylaws, minutes,
shareholder agreements and so on; for an LLC, you would consult the
organization agreement or other formation or corporation procedure
documents. Prior to filing anything with the state, be sure that
your business has complied with any steps expressly required in
your formation documents. Additionally, some states have statutory
requirements that your business must follow prior to terminating.
Especially in the cases of LLCs, partnerships and other entities,
these rules can be tricky, so it's best to consult a business
attorney.
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2. Settle your debts. If you have unpaid business debts,
you'll need to consult with your accountant and attorney prior
to ending your business to wrap up dealing with those creditors via
bankruptcy, payment notes or other means.
3. Check with your state on how to dissolve the business.
In the state in which you legally formed your business, your
corporation is a domestic corporation--meaning one created in that
state. You must file forms for dissolution of your business with
the state in which it was legally formed. You can find forms for
dissolving domestic businesses on the Web site of the state
government entity (usually the Secretary of State or the Department
of Corporations) with which you filed your business's formation
documents.
In most states, prior to terminating a business, you must have
obtained proof from the state tax office that the business has paid
all the taxes owed. Therefore, often you have to file forms with
the state tax office prior to, or concurrent with, your dissolution
paperwork.
4. Withdraw or dissolve the business. Typically, ending
business by a foreign corporation is referred to as
"withdrawing," while ending business as a domestic
corporation is referred to as "dissolving." A state in
which your business is legally "doing business"--has an
office, salespeople and so on--but is not your business' state
of legal formation means that your corporation is a foreign
corporation in that state (a corporation formed outside it).
To what degree activities constitute "doing business"
in a state is a difficult question that's determined by state
statute and case law. However, if your office has an office in a
state, you are almost certainly doing business there, and your
business should have registered to do business as a foreign
corporation when it began such activities. If you did not do so, be
sure to consult an attorney about the proper steps for withdrawing
or ending your business in the state prior to any filings, as there
can be penalties for failure to have registered.
As with dissolution, the forms for withdrawing are available on
state Web sites, and you usually must obtain tax clearance prior
to, or concurrent with, withdrawal.
Note: The information in this column is provided by the
author, not Entrepreneur.com. All answers are general in nature,
not legal advice and not warranted or guaranteed. Readers are
cautioned not to rely on this information. Because laws change over
time and in different jurisdictions, it is imperative that you
consult an attorney in your area regarding legal matters and an
accountant regarding tax matters.
Judith A. Silver, Esq., is the CEO and founder of Silver Law
Inc., a technology and business law practice, and Coollawyer Inc., a legal publishing
company on the Web. Prior to starting her companies, she served as
in-house counsel at Adobe Systems and Sabre/Travelocity.com. She
holds a bachelor's degree cum laude from Cornell
University and her juris doctorate from the University of
California, Hastings College of the Law, in San Francisco.