Whether you’re a shareholder, board member, or corporate officer of a C or S Corp, at some point you may realize it’s time to shut down.
But there are specific steps to take. You can’t simply shutter operations and walk away.
If you’re wondering how to dissolve a corporation in Texas efficiently and properly, contact our Dallas corporate attorneys at The Hunnicutt Law Group.
We’ll help you navigate this process, even if it’s complicated by various debts and obligations.
Why Do I Have to Terminate a Corporation?
A corporation is a legal entity that lives on forever until the owners formally end it. Without a proper dissolution, the entity continues to exist with corporate reporting requirements and other legal obligations.
Steps to Dissolve a Corporation in Texas
Step 1: Initiate the Process of Termination
The steps to dissolve a Texas corporation begins with:
- Unanimous shareholder consent; or
- The board of directors adopts a resolution to dissolve and seeks approval from the shareholders.
If all shareholders agree, they can sign a written document indicating they approve of the dissolution. This method is most appropriate for small businesses in which the shareholders also act as the directors.
To dissolve a C corporation with many shareholders and directors, the board of directors can adopt a resolution. This resolution goes to the shareholders, who then meet and vote.
The Texas Business Organizations Code (BOC) requires the board to give shareholders with voting rights at least 10-days’ notice of the meeting. The shareholders need a two-thirds majority to approve the resolution unless the corporate bylaws say otherwise.
Step 2: The “Wind Up” Process
Once the shareholders have agreed to dissolve or close the corporation in Texas, you’ll begin what’s called the “wind up” process.
The corporation’s bylaws and the BOC describe the necessary procedures:
- Stop business functions except those necessary to complete final transactions;
- Notify any known creditors;
- Resolve any ongoing lawsuits;
- Liquidate corporate assets;
- Discharge the corporation’s debts, taxes, and other liabilities; and
- Distribute remaining corporate assets to shareholders.
Navigating the corporation’s taxes and other liabilities is essential. The business must satisfy its creditors before it can distribute assets to the shareholders.
Additionally, if the corporation has foreign corporations operating in other jurisdictions, the business must wind up and dissolve those before dissolving the Texas corporation.
Step 3: Obtain a Certificate of Account Status
Once your business is current on all taxes and in good standing, you’ll use Form 05-359 to request a Certificate of Account Status for Dissolution/Termination from the Texas Comptroller of Public Accounts.
If you’re a nonprofit corporation, you’re exempt from obtaining this certificate.
Step 4: File a Certificate of Termination
Finally, you must file two signed copies of the Certificate of Termination of a Domestic Entity along with your Certificate of Account Status with the Texas Secretary of State (SOS). There’s a filing fee of $40 for all corporations other than nonprofits, which have a $5 fee.
The SOS can reject your certificate of termination if it’s not filled out correctly, or you fail to include your official Certificate of Account Status.
Step 5: Inform the IRS
You’ll take several steps to wrap up your business with the IRS, including:
- Filing IRS Form 996 within 30 days of the SOS’s approval of your dissolution; and
- When filing your last corporate tax return, check the “final return” box.
The IRS doesn’t cancel Employment Identification Numbers, but it can close your business account.
Step 6: Close Your Accounts
Be sure to close any corporate banking and credit card accounts.
Step 7: Cancel Any Licenses
If you have any state or local licenses or permits, cancel them to avoid reporting requirements or fees.
How Do I Close an S corporation?
All Texas corporations, even those with an S election, dissolve through the same process outlined above.
How Long Does it Take to Close a Corporation?
The length of time depends heavily on the complexity of the business and the remaining liabilities.
And remember that the paperwork takes time, too. Expect it to take up to six weeks to receive your Certificate of Account Status and up to five days for the SOS to process your Certificate of Termination.
What Happens if I Don’t Shut Down the Corporation Properly?
If a corporate entity exists, the shareholders, directors, and officers have ongoing and annual requirements including annual reporting fees and minimum taxes. The business also remains open to claims from creditors and other parties.