Dissolve Definition

Learn more about what it means to dissolve a business.

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dissolve definition

The dissolve definition is varied, depending on what context you are using the term in. In general terms, it refers to separating something into its component parts or bringing something to an end. For business purposes, we usually use the word dissolve in relation to the dissolution of a company or business. To dissolve a company means to close a business. And closing a business can be a complex process. 

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Why would a business dissolve?

There are a number of reasons to dissolve a business. These can be financial, personal, or out of necessity. 

Voluntary vs. Involuntary Dissolution 

A business may be dissolved voluntarily or involuntarily, depending on the situation. 

Voluntary Dissolution

The directors or members of a company may decide to dissolve the business because it has served its intended purpose. In some cases, business partners disagree on the future direction of the company and are unable to come to a resolution, thereby causing them to choose dissolution. 

Finances can be another reason to dissolve a business. If the company isn’t doing well financially and can’t continue successfully, dissolution may be the best option. 

Involuntary Dissolution

If a business has members or shareholders, a court may order the dissolution of a company to protect the assets of these people. This can happen if a company has engaged in illegal or fraudulent activities or if they have spent company assets unwisely. A deadlock among directors regarding a major decision could also cause involuntary dissolution. 

The state can also revoke, inactivate, or dissolve a business. Here are some examples of reasons a state would involuntarily dissolve a business:

A company’s creditors could also request dissolution if they feel it’s necessary to recover the money they’re owed. 

How to dissolve a company

Dissolving a business requires more than just ceasing operations and locking the door. All remaining assets and liabilities have to be managed appropriately to avoid legal repercussions. Here are the steps required to properly dissolve a business. 

Filing the dissolution paperwork

The first step toward official dissolution is to create a resolution to dissolve. This should be agreed upon by the owners, the board of directors, or the partners depending on the type of legal entity. Once the resolution is complete, the business will file Articles of Dissolution with the state. In most cases, this paperwork goes to the Secretary of State. Find out if any other additional forms are required in your state.

Liquidate company assets

Whether you are able to liquidate all company assets depends on the amount of cash on hand at the time of dissolution and whether the business has enough assets to cover its debts. 

File necessary tax forms

Your tax obligations don’t end when your business ceases operations. You must formalize the business dissolution with your state and local governments as well as the IRS for taxes. This includes finishing up any payroll obligations. 

Wind up affairs

Your company can’t continue to do business after the dissolution is approved. Exceptions include what’s necessary to close everything up. This may include:

Summary

Dissolving something means making it disappear, separating it into its component parts, or ending something. Dissolving a business means officially closing it. There are several steps necessary to formally dissolve a business. 

How we can help 

Dissolving a business may not be the most exciting part of being a business owner, but it might be the best move for you. By remaining compliant with your business documentation and accurately tracking your business finances using our tools and services, the process can go much smoother. Once you’re ready to start again, we’re here for all your business formation needs. 

Disclaimer: The content on this page is for informational 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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