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Dissolving a corporation in Texas is a multi-step process.
There are both internal corporate procedures to follow and external actions to take with the state of Texas.
This step-by-step guide describes how to dissolve a corporation in Texas.
Initiate the Termination
There are two main ways to begin the process of voluntarily terminating a corporation:
- Board of directors adopt a resolution and seek approval of shareholders; or
- Unanimous shareholder consent.
It is important to note that once the state of Texas dissolves your corporation, the business name is available for use by another entity. You should be absolutely certain you want to dissolve your corporation before taking any further action.
Resolution and Approval
The board of directors can adopt a resolution for dissolution and submit it to the shareholders for their approval. All shareholders entitled to vote will then meet and vote on the issue.
Under the Texas Business Organizations Code (BOC), all shareholders with voting rights must have at least ten days notice of the meeting. Unless the corporation’s bylaws state otherwise, you need a two-thirds majority vote by shareholders for the corporation to dissolve.
The second method to initiate a corporation’s dissolution requires all shareholders to sign a written consent document, indicating their approval of dissolution. Typically small businesses use this method because the shareholders are often also the directors.
After shareholder approval under either method, the corporation exists only for the purpose of “winding up.”
Conduct the “Wind Up” Process
When a corporation “winds up,” it is going through the process of dissolution. The corporation’s bylaws and the Texas BOC provide wind up procedures that the corporation must complete to dissolve.
Under the BOC, these include:
- Ceasing to carry on business, except to wind up the business;
- Notifying each known claimant of the corporation of the dissolution;
- Discharging all the corporation’s obligations and liabilities, such as debts and taxes;
- Completing outstanding lawsuits;
- Collecting and selling corporate property, except for the assets to be distributed to the entity’s owners or members; and
- Distributing any remaining assets to the shareholders.
It is important to note that all liabilities, such as creditor’s claims and taxes, must be satisfied before the shareholders receive any corporate assets. Additionally, if your corporation has any foreign corporations associated with it, those entities must be dissolved before your Texas corporation.
File Certificate of Termination
To dissolve a corporation in Texas, you need to file a Certificate of Termination with the Texas Secretary of State.
The Certificate of Termination must be accompanied by a Certificate of Account Status for Dissolution/Termination, which is issued by the Texas Comptroller of Public Accounts (CPA). The Certificate of Account Status indicates that the corporation is current on all taxes and in good standing.
Nonprofit corporations are the only entities exempt from obtaining the Certificate of Account Status. Use Form 05-359 to request a Certificate of Account Status from the CPA.
The filing fee to dissolve a Texas corporation is $5 for nonprofit corporations and $40 for any other type of corporation.
The two most common reasons the Secretary of State rejects a Certificate of Termination is because either the wrong certificate type is attached or a printout is submitted.
Be sure you request a Certificate of Account Status for Dissolution/Termination from the CPA, and do not attach any printouts from the Comptroller’s website.
Complete Final Business Matters
There are several other steps to take to terminate your business, such as the following:
- File IRS Form 996 within 30 days of the state’s approval of dissolution;
- Cancel your federal Employment Identification Number (EIN);
- Check the “final return” box when filing your corporation’s last tax return (IRS Form 1120);
- Close all corporate bank accounts; and
- Cancel any state and local business licenses and permits to avoid future reporting requirements and fees.
By taking these steps, you end the corporation’s existence and protect it against outstanding creditors and claimants.
Timing
The time it takes to dissolve a corporation varies based on how long each step of the process takes. The corporation must hold meetings, distribute assets, close accounts, and file the required paperwork.
Typically, the request for Certificate of Account Status takes 4-6 weeks to process, and the Certificate of Termination is processed within 3-5 days.
Contact the Curley Law Firm
With over ten years of experience, attorney Adam Curley can offer your business personalized solutions.
Adam Curley has dedicated his legal career to helping businesses of all sizes with their legal matters.
For more information or assistance dissolving your corporation in Texas, contact The Curley Law Firm in Houston Heights.