When a corporation is dissolved, its status as a separate legal entity is terminated, and its assets are dispersed to the shareholders. A corporation can be dissolved in two different ways: voluntarily and involuntarily.
When a corporation decides to stop conducting business, it dissolves voluntarily. This method of dissolution requires a majority vote from the corporation’s shareholders or board of directors. The shareholders must also come to an agreement on how the corporation’s assets will be distributed once it dissolves. There are many different causes for voluntary dissolution, including money issues, poor business results, or the desire to retire.
On the other hand, involuntary dissolution is a type of dissolution that takes place when a third party compels a corporation to cease operations. A company may dissolve involuntarily for a number of reasons, including unpaid taxes, breaking state law, or failing to submit yearly reports. A lawsuit to dissolve the corporation may be brought in this situation by the state government or a creditor. The court will then decide whether or not to dissolve the corporation and how to divide its assets.
Holding a board of directors or shareholder meeting is the first need for dissolving a corporation. A resolution to dissolve the corporation must be approved at this meeting. A majority of the board of directors or shareholders must vote to pass the resolution. The corporation must submit articles of dissolution to the state where it was incorporated after adopting the resolution. The grounds for dissolving the corporation and the distribution of its assets shall be stated in the articles of dissolution. The failure to pay taxes or file yearly reports, along with fraudulent behavior, breaking state law, failing to maintain a registered agent or office, are grounds for involuntary dissolution. If a corporation is being mismanaged or not acting in the best interests of its shareholders, a shareholder or creditor may also initiate a lawsuit to dissolve the business.
An S corporation should terminate its bank account right away after being dissolved. According to the decision taken at the board of directors’ or shareholders’ meeting, the corporation’s assets should be divided among the shareholders. To avoid any legal issues, the asset distribution must be completed promptly.
Finally, a corporation may dissolve freely or involuntarily. Passing a resolution, submitting articles of dissolution, and allocating assets to shareholders are all parts of the procedure. Failure to submit yearly reports or pay taxes is one of several causes of involuntary dissolution. An S corporation should terminate its bank account right away after being dissolved.
A formal notice of dissolution must normally be filed with the Pennsylvania Department of State as part of the dissolution procedure for a nonprofit organization in Pennsylvania. Any assets that remain after distribution must be given to either the government or another nonprofit organization. It is advised to speak with a lawyer or a certified public accountant to be sure all legal requirements are being followed.