Dissolving a business in New York can be a complex process. The way in which a business is dissolved can depend on various factors, including the entity type and whether court intervention is necessary. Regardless of the reason your business is closing, it’s essential to understand that there are certain procedures that must be followed. It’s vital for entrepreneurs and corporate owners to understand how to handle voluntary business dissolution and the steps involved in closing a company.
What are the Steps in Dissolving a Business?
Business dissolution is the process of terminating a company’s legal existence — perhaps the company is not profitable, or the formation documents specified an event upon which the business would dissolve. But regardless of the reason, before a company can officially close, there are a number of legal obligations that must be satisfied and requirements that must be met. Generally, the steps involved in voluntarily dissolving a business in New York are as follows:
- Review the operating agreement — It’s important to review the company’s operating agreement for guidance and instructions on how to dissolve the business. This document typically outlines the procedures that must be followed.
- File a certificate of dissolution or articles of dissolution — To formally dissolve a corporation, a Certificate of Dissolution must be filed with the New York Department of State. Similarly, if your business is structured as an LLC, Articles of Dissolution must be filed. There is also a filing fee that must be paid.
- Wind up the company’s affairs — The wind-up process is a crucial phase of business dissolution in New York. It involves ceasing business operations, notifying stakeholders, and settling financial obligations. In addition, any permits or licenses should be canceled, and financial accounts must be closed. No new projects or contracts may be taken on during the wind-up process.
- Notify creditors — Creditors must be provided with written notice that the business is closing, and all outstanding debts must be satisfied.
- Distribute remaining assets — After creditors have been paid, any remaining assets must be liquidated. Remaining funds should be distributed to owners in accordance with their ownership percentage as specified in the company’s documents.
- File taxes — You must file a final business tax return with the New York State Department of Finance and the IRS upon closing your business.
Importantly, if your business is registered in other states, you may need to satisfy additional requirements and file separate forms to ensure it is legally terminated in those jurisdictions.
What Happens if the Business is Not Properly Dissolved?
If you fail to file a certificate of dissolution or articles of dissolution and properly wind up your business, the company will continue to exist. This means you would still need to pay taxes — and you could be held personally liable for any of the company’s outstanding liabilities. Additionally, failure to follow the legal procedures involved in dissolving a business can leave you vulnerable to business fraud, business identity theft, and other legal challenges.
For instance, a company that has not been properly dissolved can still be sued for breach of contract claims that occurred prior to the dissolution. The “corporate veil” may also be pierced in certain situations if dissolution and wind-up procedures were not properly followed, leaving shareholders or members personally liable for debts incurred by the company.
Contact an Experienced New York Business Dissolution Attorney
If you are considering dissolving your business, it’s critical to have a knowledgeable business dissolution attorney who can help ensure the proper procedures are followed. At Barnes & Barnes, P.C., we offer reliable legal services and trusted counsel for a wide range of business matters, including those involving dissolution. Contact us at (516) 673-0674 to schedule a consultation.
