Most U.S. corporations choose to organize as C corporations under Internal Revenue Service rules, by which the corporation is taxed separately from its owners. Incorporating as a C corporation is no guarantee it will survive in the marketplace. Small financial problems left unchecked can quickly become insurmountable. The company may fail to keep pace with changing consumer demands and be rendered obsolete by its competitors. Sometimes managerial conflicts and mismanagement herald a corporation's demise long before stockholders are aware of the internal problems. Whatever the reason, C corporations should be formally closed down in compliance with IRS and state regulations.
Draft a corporate resolution to dissolve the C corporation as a legal entity.
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Schedule a meeting with the corporate executives and board of directors to review, approve and sign the resolution. Have the secretary on hand to make any last-minute changes.
Check the corporate bylaws to see what percentage of stockholders is needed to approve a corporate resolution. If the required majority of stockholders vote to accept it, the C corporation can start formal dissolution proceedings.
Take a thorough inventory of the corporate assets and sell them. If the corporation has multiple bank accounts, select one account to keep open and transfer the assets from the other institutions into that one before closing out the empty accounts.
Prepare federal and state tax returns to determine how much money needs to be set aside to pay the final taxes. Include any fees the state will charge to close the C corporation. Notify all creditors about the impending corporate dissolution.
Distribute the assets in order of priority. Pay federal tax liens and unpaid taxes before paying state liens and taxes. Next pay the secured creditors, followed by the unsecured creditors. Any money remaining will first be paid to the preferred stockholders before paying the common stockholders.
File the final C corporation tax returns with the IRS. Write "Final Return" in bold letters near the top of the first page for each return. Include any tax payment due with each return. File the state tax returns along with the appropriate payments. If mailing, be sure to send each federal and state tax return in a separate envelope via certified mail, return receipt requested, as proof of mailing.
Go online to the incorporating state's department of corporations and download the articles of dissolution or similar form. Complete and file the form along with any fees due. The C corporation is legally dissolved when the state receives the form and payment.
Things You'll Need
Approved resolution to dissolve the C corporation
Inventory of corporate assets
List of creditors
Allow adequate time to sell the C corporation’s assets to get the highest price possible.
A corporation overloaded with debt may need to consider filing bankruptcy to resolve its financial matters.
If the corporation is not formally closed down, the IRS and state agencies will consider it still active and expect the tax returns and other documents to be filed on time.