Most owners need to follow a specific set of procedures to formally close their businesses. And, sometimes, these procedures include a vote for dissolution.
The processes can vary based on a few factors. These include how the business is structured, the specifics of partnership agreements, and the states where the business operates. However, there are some general rules you can follow to wind down your operations.
In this guide, you'll find some common rules for the most common business structures.
Is your business a sole proprietorship? If you're the only owner and decision-maker in your organization, you won't hold a formal voting process.
However, you should document your intention to close and tell your attorney and accountant your decision. These pros can guide you on any state-required actions you may need to take to formally close your business.
Is your business a limited partnership? If you have a partner who has no voting interest in the business, you won't hold a vote for the dissolution of your business.
Here's what you should do instead. Inform your partner, in writing, of your decision to cease operations and share your plan for winding down operations. You should also connect with your attorney and accountant to learn any additional steps you'll need to take to formalize the close of your business.
Do you have a partner with a voting interest in the business? If so, you probably have a partnership agreement that spells out formal procedures for dissolution. You can simply follow those procedures and work with your accountant and attorney to meet any outstanding requirements.
If you don’t have a written partnership agreement, tell your partner, in writing, of your preference for closure. If your partner agrees to your suggestion, you can draft a formal resolution for dissolution and work together to set a plan for winding down your business. But, if your partner disagrees—and you either have no partnership agreement in place or your agreement doesn’t include terms of closure—you have several options:
- Ask your partner to buy out your portion of the business.
- Look into selling your stake in the business to another party.
- Consult with an attorney who can advise you on legal precedents for partnership disputes.
- Arrange to meet with a mediator who can help you come to an agreement.
In any scenario, be sure to review your state’s business statutes on closure, which may specify additional steps you'll need to take. Your attorney can help you to work through those requirements.
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Limited liability companies (LLC)
Did you structure your business as an LLC? If so, you should refer to your entity’s articles of organization and operating agreements for the protocol you’ll need to follow to close your business. Most articles of organization require the majority of an LLC’s member-owners to agree to a closure. It is rare for those articles to require unanimous agreement. But, if consensus is required, you'll need to abide by those terms.
The proper procedure for dissolution generally includes a formal vote. Each person’s opinion on the closure should be documented in a formal resolution for dissolution. Then, your LLC’s resolution for dissolution should be archived with your business’s records and stored permanently with other important founding documentation.
If the majority or entirety of your LLC’s member-owners vote for closure, you can formalize a plan for winding down your business. Consider working with an attorney and an accountant to make sure you follow proper federal and state-specific procedures (including your state’s limited liability company act) and stay on top of tax concerns.
Is your business structured as a corporation? If so, you'll need to follow the procedures laid out in your organization’s articles of incorporation and bylaws.
Generally, corporations must attain shareholder approval to begin dissolution procedures. Most corporate bylaws state that either a simple majority or a two-thirds majority of its voting shares must agree to dissolution. However, some call for a unanimous vote for closure. In either case, if the board moves to close the business, its members should draft and approve a resolution to dissolve. This resolution should then be presented for shareholder vote and documented in the business’s corporate records.
If there are no voting shares, the board of directors must follow their corporate bylaws and come to a majority or unanimous approval. The board of directors should draft and approve a resolution to dissolve and document the resolution in the business’s corporate records.
Be sure to keep your corporate attorney involved in the process. Your attorney should be able to guide you through the necessary federal and state requirements, which may include requirements for any tax clearances that are necessary for your state.
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What should a resolution for dissolution include?
At a minimum, your organization’s resolution for dissolution should include these elements:
- The name of the business that will be dissolved
- An agreement to dissolve the business in accordance with the laws of the states in which it operates
- A proclamation of a plan to dissolve the business and liquidate its assets
- A declaration that the plan was approved by the majority or entirety of the business’s voting members
- A statement that reflects the agreed-upon decision to file dissolution documents with the states in which it operates
- A formal plan for the steps of dissolution
What steps should my business take to dissolve?
You will need to work through a series of steps to formally dissolve your business. These will include filing articles of dissolution, liquidating assets, repaying creditors, and filing final entity taxes. Using our closure guide, you can work through these steps and formally plan your dissolution process.
Voting for dissolution is the first step of a lengthy process. Log into your owner’s portal to access articles, advice, and checklists that’ll help you through every step you need to take to close your business. We’ll connect you with information that’s tailored to your business objectives, whether you decide to close, sell, or restructure.