The dissolution of a company is a process that can vary greatly from one country to another. In the US, there are two main systems; which system is used determines the order of events. In both systems, there are five main steps to the dissolution itself.
Creditors are usually informed of a company’s dissolution through print advertisements.
The rules that must be followed to dissolve a company depend on which law the state in question follows. Some follow the Model Law of Commercial Companies, also known as the Model Law. Others follow the Revised Model Law on Commercial Companies, known as the Revised Model Law.
Under the Revised Model Law, the corporation is dissolved immediately but remains in existence during the liquidation process. During this process, you cannot do any more business. Under the Model Business Corporation Law, directors cannot dissolve a corporation until the liquidation process is complete. At this stage, the company no longer exists legally, except in the context of the lawsuits brought against it.
The process of dissolving a company can vary greatly from one country to another.
The first step in the process of dissolving a company is for the directors to propose the dissolution to the shareholders and the shareholders vote in favor. The majority required for approval will depend on social norms. The second step is to present the documentation to the corresponding state. With states that follow the Model Law, the corporation must file a declaration of intent before starting the liquidation process and then file the articles of dissolution when the process is complete. With states following the Revised Model Law, articles of dissolution are usually filed before proceedings begin.
The third step is to notify creditors of the dissolution or intention to dissolve the company. They must be given an address and a deadline for filing complaints. In states that follow the Revised Model Law, the corporation generally must place an advertisement in a local newspaper for the attention of unknown creditors.
The fourth step is to process creditor claims. A claim can be accepted and paid or rejected. If the claim is denied, the claimant must be notified in writing and given a deadline to pursue the claim legally.
The final step is to distribute the remaining assets to shareholders. The business must file IRS Form 1099-DIV, which details these distributions. The corporation must also have completed IRS Form 996 within 30 days of approval of the dissolution by the shareholders.