Dissolution Definition

Dissolution means the formal closure or termination of a company's operations, typically involving the distribution of assets and settlement of debts.

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What is dissolution?

Dissolution is the official closure of a business entity with the state. If you form a limited liability company (LLC) or corporation, then you must file Articles of Dissolution with the state in order to formally and compliantly close your business. 

Dissolution Process

If you want to dissolve your business, there are several steps you need to take. While the specifics may differ depending on your business type and other factors, they will generally include:

Filing Articles of Dissolution

Depending on whether your business is publicly or privately held, the owners or board of directors must first create a resolution to dissolve. 

Once this resolution is agreed upon by all shareholders, you will need to file your Articles of Dissolution with the Secretary of State’s Office in the state where your business is registered. 

Read our guide to learn more about the specific steps in an LLC dissolution.

Other Steps to Take

Upon filing your Articles of Dissolution, you need to take care of any outstanding responsibilities in order to close your business in good standing with the state and all shareholders. This generally means: 

  • Filing your final taxes
  • Notifying interested parties
  • Liquidating company assets
  • Settling outstanding debts and liabilities
  • Distributing remaining assets to shareholders

You can also find more detailed information on the steps to take when closing your business.

Other Names for Dissolution

A few other names for dissolution include: 

  • Business dissolving
  • Business closure
  • Closing your business
  • Dissolving your business
  • Dissolved business
  • Company closure

Voluntary Dissolution

When you decide to close your business and follow all of the steps listed above, it is referred to as “voluntary dissolution.” This simply means that you dissolved your business on your own accord. 

Involuntary Dissolution

Unfortunately, businesses are also sometimes dissolved as the result of being out of compliance with the state. You business could fall into bad standing for the following reasons: 

  • You neglected to file your annual report
  • You didn’t pay your filing fees (perhaps your check bounced and you never addressed the matter)
  • You didn’t pay your franchise taxes on time

When your business is out of compliance, the state can choose to dissolve it. This is referred to as involuntary dissolution. Luckily, businesses that have been involuntarily dissolved can take the necessary steps for getting back into compliance and file for reinstatement. 

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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