Withdrawal of a corporation, also referred to as dissolution of a corporation, is the termination of a corporate entity. The procedure could be conducted voluntarily or involuntarily. Ending a corporation becomes more complex with more owners and more assets. For every corporation, the starting point for ending the corporation is getting the required approval within the corporation for the dissolution. Usually this involves a vote by the board of directors and another by the shareholders, but more or less may be required depending on the local laws and the articles of incorporation.
For an example: the Delaware General Corporation Law (DGCL) Title 8, Chapter 1, Section 275 states that a majority of the whole board could call a meeting for the dissolution and vote for it. If all stockholders entitled to vote agree to the withdrawal of the corporation in writing, then a certification should be filed to the Secretary of State of Delaware, without the authorization of the directors. The certification of the dissolution should include the name of the corporation, the date of dissolution, the authorization of the board of directors and shareholders, etc. If the corporation does not pay the taxes or fails to file the annual franchise tax report, it might not be dissolved. See: DGCL Title 8, Chapter 1, Section 277.
One must satisfy the required filings and fees for the federal and state governments in which the business is registered. This ensures that the corporation stops incurring taxes and incurring future liabilities. Before a corporation can complete this step, taxes and potentially other liabilities such as court settlements must be paid by the corporation.
Lastly, the corporation must go through the process of dissolving assets, closing any other accounts, and distributing cash to creditors and shareholders. The selling off of assets can be a long process depending on the size and industry of the corporation. Laws and often the articles of incorporation may outline how the assets are to be liquidated at the end of business. In the case of bankruptcy or just the closing of a corporation, the hierarchy of who receives the proceeds from the asset liquidation is usually controlled by the debt obligations, articles, and other agreements of the corporation as well as detailed legal requirements.
[Last updated in April of 2022 by the Wex Definitions Team]
- Keywords