How to Close a Corporation in 7 Steps

If you’re wondering how to close a corporation, you’ll have to think beyond simply stopping operations. Be prepared to hold a board meeting, file tax forms and liquidate or distribute business assets, among other tasks — and requirements can vary from one state to the next.

When to consider dissolving your corporation

There are several reasons why you might close a business. It may be stalling out financially, or you might want to take your career in a new direction or retire. No matter the reason, your company will remain a legal business entity until it’s dissolved. That means you’ll have to continue paying business taxes and filing annual reports. Falling behind on these obligations may result in penalties. Failing to shudder an inactive business could also leave you vulnerable to lawsuits.

If you decide to dissolve a corporation, be aware that your state may have specific requirements. A tax professional or attorney can provide personalized advice based on your situation.

How to dissolve a corporation

1. Hold a board meeting

Unlike a sole proprietorship, a corporation is required to appoint a board of directors. The board will need to hold a vote to dissolve the company. While some states don’t require a minimum vote, others might require that a majority or two-thirds of the board vote in favor of dissolution. Be prepared to document the results and maintain up-to-date records.

If the corporation has shareholders, a majority will also have to approve the decision since you aren’t the sole owner. Check with your state to see what constitutes a majority. In California, for example, you need at least 50% of shareholders to be on board before you can dissolve a corporation.

2. File articles of dissolution

These are legal documents you file in your state to dissolve your business entity. Contact your secretary of state office to see what paperwork is required. (You can expect a nominal filing fee.) It’s typically a form that outlines:

• The business entity
• The business’s debts and liabilities
• The distribution of business assets

You’ll have to file articles of dissolution in all states where the corporation conducts business. Otherwise, your company could be fined in the future for unpaid taxes or unfiled annual reports.

3. Notify vendors, creditors and customers

Your state may require you to notify creditors before you file your articles of dissolution. Regardless of the timing, it’s good business to notify your suppliers, service providers, landlords and lenders. Be sure to:

• Communicate when your business will stop operating.
• Make a plan to resolve any unpaid debts (more on this shortly).
• Tie up outstanding orders.
• Ask about any refundable security deposits you’ve put down.

You might also choose to put out a press release and communicate with your customers. You can do this through email and social media. Anticipating customer questions and being transparent can help set the stage for a smooth transition.

4. Review labor laws

In most cases, corporations that have at least 100 employees must give salaried and hourly workers 60 days’ notice before dissolving. (This rule doesn’t apply if you’re closing due to natural disasters or unforeseen business circumstances.) Failing to comply could leave you responsible for employee back pay and benefits for up to 60 days.

Your state may have additional employee protection laws. If you close a corporation in Connecticut, for example, you must continue providing health insurance for affected employees and their dependents for 120 days, or until they become eligible for insurance under another group (whichever comes first). Here are some other things to think about regarding employees:

• Prepare to issue final paychecks on each employee’s last working day.
• You must reimburse employees for outstanding expenses and unused vacation time.

5. File tax forms

You’ll need to button up your corporation’s tax liability before closing. That includes:

• Employment taxes: Your company likely withholds federal income taxes from employee paychecks. You must make final federal tax deposits and report employment taxes before dissolving.
• Sales tax: If your corporation collected sales tax on products or services, you’ll have to file a final sales tax return. Check with your state to see how much time you have. In New York, it must be filed within 20 days after ceasing business operations.
• Final tax return: You must file a final federal tax return for the year the corporation closed. Be sure to check the box that allows you to indicate that you’ve shut down. You may have to file a state tax return as well.

Can I cancel my EIN?

Your Employer Identification Number (EIN) is technically never canceled — it will always be associated with your specific business entity — but you’ll want to close your IRS business account. Simply mail the IRS a letter stating the business name, EIN, business address and reason you’re closing the account.

6. Close accounts, cancel licenses and remit final payments

Shut down all of your business’s open accounts, which may include:

• Checking and savings accounts
• Credit cards and other lines of credit
• Business loans
• Utility accounts (e.g., electricity, water)
• Phone and Wi-Fi contracts
• Vendor and supplier accounts
• Subscription services

Closing your accounts might involve making final payments to vendors and service providers. Also be sure to cancel any permits and licenses you have with your county or state.

7. Liquidate or distribute assets

Your business may have assets like inventory, equipment, machinery, office furniture and more. You can sell assets and use the proceeds to pay off outstanding debts and liabilities — assuming they aren’t considered collateral on other debt. Any remaining assets are to be distributed among shareholders. Those who have a larger ownership stake in the company will typically receive more than someone with a smaller ownership position.

Don’t forget to maintain business records

It’s wise to keep all business records in a safe place for three to seven years after closing. That includes important files, documents, employment records and tax information. It could come in handy if you need to reference something or facts are ever called into question.