In the simplest terms, business dissolution refers to the process of winding down a business, and possibly liquidating its assets. This can be a process that requires multiple steps, particularly for businesses that have complex operations and which have many staff members.
The first step in the dissolution is the approval process. This is where the company owners agree to dissolve the business. For a small business, this might be a simple matter of deciding to close down the business if one person owns it. For corporations that have shareholders, the shareholders have to be involved in the process and have to give dissolution the go-ahead before the rest of the processes can be initiated. Once agreed, the board of directors then writes up the resolution to dissolve.
The next step in the process is filing the paperwork with the relevant state departments. This has to be done in the state in which the company was incorporated. However, if one owns a company that was allowed to operate nationally or in other states, then the filing has to be done in the states where it was qualified to transact business as well. The process and requirements for this filing vary by state.
Once this is done successfully, the business owners would then need to file federal, local and state tax forms since the business still has tax obligations despite being wound down. The IRS provides a checklist that can be used as a guide for doing this. The last steps in the dissolution include notification of the business’ creditors, settling all the creditors’ claims and liquidating or distributing the assets that remain. These are usually shared among company owners and shareholders.