Dissolving a business involves much more than simply shutting its doors. Under Texas law, there are certain steps a business owner must take.
In Texas, most business dissolutions are governed by the Texas Business Organization Code (BOC). The BOC states that there are two main parts of dissolving a business, which generally include winding it up and terminating the business. This legislation changes regularly and so, anyone who wishes to dissolve a business should first speak to a Texas business attorney familiar with the process.
Winding Up a Business
There are a number of tasks business owners must perform when they wish to dissolve their company, which are known as ‘winding up’ the business.
First, the business owner should collect the certificate of formation, the operating agreement or bylaws any shareholder agreements. One of these documents should outline the specific procedures required for dissolving the business. Within one of these documents, there is likely a requirement that a vote must be taken among shareholders for a corporation or the members of an LLC to determine if there is a majority vote to dissolve the business.
Even when these documents do not contain such provisions, the BOC requires that a vote be taken when there is more than one deciding partner or officer. The decision should be recorded in the minutes of the meeting wherein the vote was taken.
After triggering the action of winding up the business, the company must immediately stop all business transactions, except for those that are required for winding up. These tasks include:
- Sending written notice that the business is winding up to any claimant against the business
- Selling the property of the business
- Creating adequate arrangements for the discharge of the business’ obligations and liabilities
- Distributing the remainder of the property to members according to the interests and rights of those members
- Bringing any lawsuits involving the business to a resolution
Although these are the main tasks of winding up a company, there may be others, as well, and a business attorney can advise on those.
Tax Issues Involved with Dissolving a Business
Prior to filing a certificate of termination, business owners must receive a certificate of account status from the Comptroller of Public Accounts (CPA). This certificate states that all of the business’ necessary taxes are up-to-date and that the business is in good standing to proceed with dissolution. After filing Form #05-305 with the CPA, the agency will send the business owner a certificate of account status. This must be attached to the certificate of termination.
Obtaining a Certificate of Termination
To officially dissolve a business, owners must obtain a certificate of termination. This form is available from the Secretary of State and must include:
- The name of the business
- The name of at least one manager or each member, depending on the structure of the business
- The business’ file number assigned by the Secretary of State
- An explanation of why the business is winding up
- A statement establishing that the dissolution of the business complies with the BOC
Once the certificate of termination is processed, which takes approximately five days from the date of submission, the business name becomes available for others to use.
Our Texas Business Attorney can Help
No matter the reason for dissolving your business, you should not do it alone. There are many laws and rules to follow and there could be serious consequences if they are not followed. At Cordoba Law Firm, PLLC, our Lake Jackson business attorneys can advise on the steps you must take and guide you through the process. When it is time to dissolve your business, call us at (979) 297-2854 to schedule a meeting with one of our attorneys.