No one starts a business with the goal of one day shutting it down. However, under certain circumstances — like if you’re retiring with no successor or your business is consistently losing money — dissolving the company may be necessary. Here’s a look at how to legally dissolve a business in Texas.
Closing your business involves more than just walking away. To properly wind up your company’s legal existence, you must go through the process of business dissolution.
Business Dissolution in Brief
Business dissolution isn’t just closing your doors. It involves finalizing your company’s debts and other affairs and then removing it as a business entity entirely. If you cease to operate but your business remains a legal entity, it may still owe taxes and face other obligations. Business dissolution can be a very complicated process. Just as you should work with a lawyer throughout the steps of corporate formation, you should also hire one to assist you in dissolving your company.
When Might You Need to Dissolve a Company?
There are many possible reasons for business dissolution. The process can be voluntary or involuntary.
Voluntary Dissolution
If the owners of a business are ready to move on or are facing financial trouble, they may decide that dissolution is the best way forward. These are some circumstances where that may be the case:
- The owner is retiring, and there are no successors.
- The business is no longer profitable.
- The company was absorbed as part of a merger or acquisition.
- The company was intended to be a short-term venture.
Depending on the state of the business, dissolution may not always be preferable. For instance, if an owner is retiring but the business is still profitable, selling the company could be the better option.
Involuntary Dissolution
In some cases, a business may be involuntarily dissolved. There are two main types. In the first, known as an administrative dissolution, the government dissolves the business. In the second, called a judicial dissolution, a shareholder files a lawsuit to dissolve the company. There are many situations that could lead to an involuntary dissolution. These include illegal business activity, extensive regulatory non-compliance, and the presence of debts the company cannot settle.
How to Dissolve Different Types of Businesses
The Dissolution Process Varies Based on Your Business Type
The process of dissolving (sometimes called “winding up”) a business varies, depending on your company type. Here’s a look at how to dissolve three common kinds of businesses: limited liability companies (LLCs), partnerships, and corporations.
Dissolving LLCs
Dissolving an LLC can be straightforward if you are the sole owner or if you have one or two co-owners. These are the steps you need to take:
- All members vote on dissolution.
- File a Certificate of Termination with the Texas Secretary of State.
- Obtain a Certificate of Account Status to verify you have no unpaid taxes remaining.
- Cancel your employer identification number (EIN) and close your IRS business account.
- Settle your debts.
- Distribute your assets.
You could run into issues along the way, such as your company having more debts than it can pay. If you hit a roadblock, your business lawyer should be able to assess the situation and offer valuable advice on how to proceed.
Dissolving Partnerships
The process of dissolving a partnership is very similar to that of dissolving an LLC. There’s a very good chance your partnership agreement already details how your company should go about the process of dissolution. If it doesn’t, you will likely need to follow these steps:
- The partners vote on the dissolution process.
- File a Certificate of Termination or Certificate of Withdrawal with the state.
- Check with the Texas Comptroller to make sure you have no outstanding tax obligations.
- Cancel your EIN and your business account with the IRS.
- Settle any outstanding debts.
- Distribute all remaining assets.
- Notify all relevant stakeholders.
- Cancel all relevant permits and licenses.
Depending on the size of your business, these steps can sometimes become quite complex, but your legal representative may be able to demystify the process.
The right attorney can help demystify the dissolution process. Call Weisblatt Law Firm at (713) 666-1981 to get started with a free phone consultation.
Dissolving Corporations
When you dissolve a corporation, there are more steps involved than with dissolving an LLC or partnership. The process generally goes like this:
- The board of directors must approve the request to dissolve.
- The shareholders may have to vote to approve the dissolution.
- File a Certificate of Termination or Certificate of Withdrawal.
- Obtain a Certificate of Account Status from the Texas Comptroller to verify that all taxes are paid.
- Cancel your EIN and IRS business account.
- Notify creditors and settle remaining debts.
- Distribute all remaining assets amongst shareholders according to bylaws.
This process is sometimes more complex than it sounds. For instance, if your corporation has nonliquid assets like buildings or equipment, you will likely need to liquidate them before distributing funds to shareholders.
Key Steps in Business Dissolution
Typing Up Your Company’s Loose Ends
Dissolving your company is an involved process, and there’s more to it than simply filing the relevant paperwork. When you close your business, you must also do the following:
Settle Remaining Debts
In many cases, closing businesses have obligations like these that still need to be settled:
- Commercial leases
- Business loans
- Business credit cards
- Unpaid taxes
- Equipment leases.
Dissolving your company doesn’t automatically erase debts. In some cases, like if the business closed with assets you distributed to yourself, creditors may be able to come after you to recover what they’re owed.
Distribute Remaining Assets
If your business has assets remaining after dissolution, your governance documents should specify how they should be distributed. If you are the sole owner of an LLC, those assets may go to you. If you have a larger corporation, distributing the assets will likely be more complicated.
Keep All Records
In case there are problems down the line, or you are sued for a debt, you should keep all records of debts settled and assets distributed.
Verify That All Proper Notifications Have Been Made
You should make sure that all necessary governmental organizations and regulatory bodies have been notified. This is where having the right business lawyer becomes especially important. Your attorney can verify that all relevant parties have been informed.
Need Help With the Business Dissolution Process? Texas Attorney Andrew Weisblatt Is Here for You
Making the decision to dissolve your company is never easy. A business attorney can help you determine whether dissolution is the best choice for you — and if it is, they can help you through the process. However, you don’t need just any business lawyer if you’re considering dissolution. You need an attorney with extensive experience in dissolving companies of varying types. When you work with Weisblatt Law Firm, you gain a knowledgeable advocate who will serve your best interests throughout the process.
Firm founder Andrew Weisblatt has been a business attorney since 1992, and he has worked with companies of all sizes — everything from sole proprietorships to multinational corporations. Mr. Weisblatt emphasizes the importance of forming lasting relationships with his clients, and he is committed to helping you achieve your business goals and will navigate any challenges that arise along the way.
Considering dissolving your business? Don’t go through the process alone. Call Weisblatt Law Firm at (713) 666-1981 to book your free phone consultation today.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
