Businesses may have a beginning and an end. After months or years of operation, it may be necessary to dissolve the company for one reason or another. However, dissolving a corporation can be a complex exercise. It requires following multiple steps to avoid stress and liabilities while ensuring a successful dissolution.
Get Help Dissolving Your Corporation
This article will discuss the meaning and types of dissolution in Massachusetts and the steps you should take to dissolve your corporation. You’ll also learn the importance of adequately dissolving a business and how attorneys can help you do that successfully.
What Is Corporation Dissolution?
Corporate dissolution is the termination of a corporation’s existence. Technically, a corporation continues to exist after dissolution but only to take care of certain final matters, collectively known as “winding up.” It’s after these activities that the corporation entirely ceases to exist.
Corporation dissolution could be voluntary or involuntary. Involuntary dissolution may occur by a court decree or for administrative reasons, such as when the corporation fails to comply with the requirements of relevant state laws or has become inactive, and the dissolution would be in the public’s interest. Voluntary dissolution arises when the shareholders decide to dissolve the corporation.
The Massachusetts Corporation Dissolution Process
The relevant laws for voluntary dissolution in Massachusetts include those under the Business Corporation Act (BCA) as codified in the General Laws of Massachusetts, Title XXII. Although the procedure may seem complicated, we’ve simplified it as follows:
1. Check the Articles of Organization and the BCA
Dissolution may be guided and authorized by the procedures in the articles of organization or those in the BCA. The articles of organization refer to the highest governing document in a corporation and generally include:
- The purpose of the corporation
- Responsibilities of board members
- The type of shares for the particular corporation
If the articles of organization discuss the process of dissolution, they may state that the process starts with a resolution, or recorded decision, by the board of directors, followed by a resolution by the shareholders. The articles may also present the number or percentage of votes required to have a valid resolution. The BCA mandates that if your articles of organization set out a procedure for dissolution, you should follow the articles.
If the articles of organization do not discuss dissolution or expressly allow other procedures, turn to the BCA. The primary BCA procedure requires that you commence the process with a resolution by the board of directors to submit a dissolution proposal to the shareholders. The shareholder will then vote on the proposal at a shareholders meeting to determine whether or not to proceed with the dissolution after giving each member at least seven days advance notice.
Unless your articles of organization require a different number or percentage of votes, a two-thirds vote of all entitled voters suffices. There may be additional rules if your shareholders are categorized into multiple voting groups.
In the absence of a formal meeting, all the shareholders in the corporation may give written consent unless your articles of organization state otherwise. This approach is helpful to small and medium corporations where all the shareholders agree to the dissolution.
2. Notify the Department of Revenue (DOR)
Within 30 days of the authorization to dissolve the corporation, notify the Department of Revenue. There are two ways to give notice. First, you may use a form provided by the DOR. Second, you may send a letter on a corporate letterhead. Ensuring that a corporation officer dates and certifies the document is essential.
The notice must include some relevant information:
- The corporation’s federal and state identification numbers
- The various names under which the corporation has conducted operations
- The date the corporation ceases or plans to cease doing business
- The intended dissolution date
Additionally, the corporation must file all tax returns and pay due amounts.
3. File the Articles of Dissolution
File the articles of dissolution with the Secretary of the Commonwealth. The document must contain your corporation’s name, the date the dissolution was authorized, the procedure used for dissolution, and other relevant information. For example, if the BCA procedure guides your dissolution, indicate the votes required for a valid resolution and those that oppose the resolution, if any. If your articles of organization guide the process, state the required procedure and establish that you complied with them.
Remember, your corporation’s annual reports need to be up-to-date to complete this step. The articles of dissolution cannot be filed unless your corporation’s annual reports were submitted for the past 10 years, or all years your corporation existed if it was incorporated less than 10 years ago.
4. Notify Creditors and Claimants
It is optional but recommended that you give any creditors or claimants notice of your corporation’s dissolution. You can contact known claimants directly by sending a written document after dissolution. For unknown claimants, you may make publications in the newspaper. These two options are provided under the BCA.
Liquidate the remaining assets after you pay outstanding taxes and company debt, and make any final distribution to the shareholders according to the share or percentage of their ownership.
If your corporation was registered to operate in other states, it is recommended that you file separate forms when terminating your rights to business in each applicable jurisdiction. This helps end the payment of minimum business taxes and annual report fees.
5. Close Accounts
Finally, close all bank accounts, service accounts, and credit lines in your business’s name. It also helps to terminate all permits and licenses, as well. Inform customers and vendors about the dissolution to avoid inconveniences.
The Importance of Properly Dissolving a Business
Corporate business dissolution helps protect the shareholders and directors against liabilities. Your corporation ceases to exist when you properly dissolve and wind up. Any person who purports to conduct operations in your company’s name after that period, be it corporate identity theft or otherwise, may not bind the shareholders or board of directors to any issues or liabilities tied to their actions.
Improper dissolution may also continue to make shareholders and directors responsible for taxes and reporting requirements, and expose the business to credit claims and lawsuits. Again, proper corporate dissolution mitigates the risk of fines and penalties.
How to Dissolve a Corporation in Massachusetts
Here is an overview of the steps to dissolve a corporation within the state of Massachusetts:
- File Form 966: Complete and file Form 966 with your final corporate tax return.
- Partnerships: File Form 1065 and Schedule K-1s.
- Sole Proprietors: No longer file Schedule C with your individual income tax return.
- Notify State Authorities: Inform the Massachusetts Secretary of the Commonwealth.
- Settle Obligations: Clear debts and taxes.
- Close Accounts: Shut down accounts and cancel licenses.
- Dispose of Assets: Distribute or dispose of assets.
- File Final Tax Returns: Complete state tax returns and meet additional requirements for a legal dissolution.
How a Massachusetts Corporation Dissolution Attorney Can Help
Corporate dissolution lawyers have the experience to help dissolve your corporation according to the legal requirements. The dissolution process can be complicated, especially when the company has large assets and complex shareholdings. A corporate dissolution attorney can:
- Help you know and apply the correct procedure for dissolving your business.
- Prepare and file all the paperwork, including the proposal for dissolution, the articles of dissolution, notices, and tax returns.
- Help you negotiate and settle outstanding credit claims and liabilities.
- Help you sell your business and assets, and share the proceeds appropriately.
- Assist with the legal issues that arise during and after the dissolution process.
Contact Calabrese Law Associates for a Corporation Dissolution Attorney
Corporation business dissolution involves a highly technical series of activities, which may only be valid if you follow specific procedures. This makes it beneficial to employ the services of an attorney with expertise in such operations. Corporation dissolution attorneys at Calabrese Law Associates help you mitigate the risk of liabilities, penalties, and debts that may accumulate after the dissolution.
Calabrese Law Associates assists corporations in the Greater Boston Area with their business dissolution needs. We advise, facilitate, and provide business persons with confidence throughout the process. Contact us to learn more.
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This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.