How to Dissolve a Corporation

Corporation dissolution: the seven-step process

1. Board of directors resolution — the board must formally adopt a resolution recommending dissolution. This is typically done at a meeting (with minutes) or by unanimous written consent.
2. Shareholder approval — most state corporation statutes require shareholders to vote on dissolution. Common thresholds are a majority of outstanding shares or 2/3 — check your state law and bylaws.
3. Wind up business affairs — collect receivables, give creditor notice (per state law), satisfy known claims, distribute remaining assets to shareholders.
4. Obtain tax clearance — many states (CA, DE, NY, IL, NJ, OH, PA, TX) require confirmation that all state taxes are paid before they'll process the dissolution.
5. File Articles of Dissolution — submit the official dissolution document to the Secretary of State along with the required filing fee.
6. File final tax returns — Form 1120 (C-Corp) or 1120-S (S-Corp), state corporate returns, all marked as "final return."
7. Cancel licenses and notify creditors — business licenses, EIN (optional), foreign state registrations, sales tax accounts.

Key differences from LLC dissolution

• Formal governance requirements — corporations require board and shareholder approval; LLCs only need member approval.
• Higher filing fees — corporation dissolution fees tend to be higher than LLC fees. For example, Delaware corporations pay $204 vs. $200 for LLCs.
• Tax clearance more common — more states require tax clearance for corporations than for LLCs.
• Creditor claim period — many states allow corporations to publish a notice to creditors that shortens the period during which claims can be brought against directors and officers.
• S-Corp specifics — if the corporation made an S-election, you also need to file a final S-Corp return and terminate the S-election with the IRS.

Special considerations for nonprofit corporations

Nonprofit dissolution has additional requirements. In most states, you must:

• Distribute remaining assets to another nonprofit (not to members or directors).
• Notify your state's Attorney General (in CA, NY, MI, OH, and others, this is required).
• File a final Form 990 with the IRS marked "final return."
• Notify the IRS of the dissolution (Form 990 includes a section for this).

Common pitfalls to avoid

• Skipping the shareholder vote — even closely-held corporations need to document this properly.
• Forgetting foreign registrations — if your corporation is registered in multiple states, each one needs a withdrawal filing.
• Not handling 401(k) plans — if you have a retirement plan, terminate it properly with the IRS.
• Filing dissolution before paying franchise tax — Delaware, for example, won't process your dissolution if franchise tax is unpaid.
• Distributing assets before paying creditors — this can expose directors to personal liability.