Dissolution of a corporation refers to the formal process of terminating the legal existence of a corporation. This process can be voluntary, initiated by the corporation’s directors and shareholders, or involuntary, resulting from a court order or administrative action due to failure to comply with legal requirements.
In a voluntary dissolution, the board of directors typically proposes a plan for dissolution, which must then be approved by the shareholders. Once approved, the corporation must file articles of dissolution with the appropriate state authority. This document usually outlines the intent to dissolve, the effective date of dissolution, and other required information. After filing, the corporation must settle its debts, distribute remaining assets to shareholders, and complete any necessary final tax filings.
Involuntary dissolution may occur when a corporation fails to comply with state laws, such as failing to maintain a registered agent or not filing annual reports. The state may initiate dissolution proceedings if a corporation is deemed inactive or noncompliant, removing its legal status and protections.
Both forms of dissolution require careful attention to the steps involved, as improper handling can result in legal complications or personal liability for the corporation’s directors and shareholders. For example, if debts are not settled before dissolution, creditors may pursue the shareholders personally if the corporate veil is pierced.
Ultimately, the dissolution of a corporation marks the end of its legal existence, but the obligations and responsibilities incurred during its operation may continue to affect the former officers and shareholders.