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As a legal entity, a corporation will exist indefinitely unless steps are taken to formally end its existence. The corporation must be dissolved. Without going through the formal dissolution process, the corporation will continue to exist as a legal entity which comes with reporting requirements and other obligations. If you are looking to dissolve your corporation in Texas, here is what you need to know.
Dissolving a Corporation
In order to dissolve a Texas corporation, unanimous shareholder consent must happen or the board of directors must adopt a resolution to dissolve the corporation and then seek shareholder approval. Should the shareholders unanimously agree to the dissolving of the corporation, then they must all sign a written document approving the corporation’s dissolution. Oftentimes, this is the path to dissolving a corporation taken but smaller businesses with shareholders acting as directors.
C corporations, however, have a significant number of shareholders and directors. As such, they usually go the other path to dissolve the corporation. This means that the board of directors adopt a resolution to dissolve the corporation. This resolution is then, in turn, put before the shareholders. The shareholders will then meet and vote on the resolution. Per the Texas Business Organization Code (BOC), shareholders with voting rights must be given at least ten days’ notice of the meeting where the vote on the resolution will be held. The approval of the resolution requires a two-thirds majority vote unless specified otherwise by the corporation’s bylaws.
Once the dissolving of the corporation has been formally approved, the winding up process will begin. To wind up the corporation’s affairs, you must turn to the corporate bylaws s the BOC. Winding up will involve stopping all business functions except what is necessary to wrap up any final pending transactions. All creditors and potential creditors of the corporation should be notified of the dissolution and any pending lawsuits will need to be resolved. Additionally, the following must be done:
- Corporate assets liquidated
- Discharging of corporate debt and other liabilities
- Distribution of remaining corporate assets to shareholders
- Address final taxes and related liabilities
You will need to obtain a certificate of account status. To obtain this, you will need to file Form 05-359 form the Texas Comptroller of Public Accounts. You can file to request a Certificate of Account Status for Dissolution once your corporation is made current on all taxes and in good standing.
Next, you will need to file a certificate of termination. More specifically, you will need to file two signed copies of the Certificate of Termination of Domestic Entity and your Certificate of Account Status with the Texas Secretary of state. Be sure to fill it out completely and accurately as the Secretary of State can reject it if it is not properly submitted.
Finally, you will need to let the IRS know of the dissolving of your corporation. File IRS Form 996 no later than 30 days after you receive the Secretary of State’s approval of your dissolution. Upon filing your final corporate tax return, be sure and check the box marked “final return.” Close your corporate bank accounts and credit cards. Cancel any state or local licenses. Cancel any permits.
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Want to avoid the red tape clogging the path to dissolving your corporation? Let the Kumar Law Firm handle it for you! Contact us today.