How to Dissolve a Corporation

How to dissolve a corporation in each state.


If you can start up a corporation, then it’s certainly possible that your corporation can end, too. This is the dissolution of the corporation.

Dissolving a corporation is not exactly as simple as just shutting down your operations. To do this right, you have to do it formally, just as you started your corporation formally. That way, you’re sure that your corporation is no longer incurring any fees or debts. Everything’s also finalized so that there are no disagreements between shareholders, which may end up in unnecessary litigation otherwise.

So, how do you go about this?

Step 1: Start with a Board Meeting

If you want to dissolve the corporation, then you should check if the other decision-makers for the corporation agree with you. That means calling for a board meeting and discussing the topic of dissolution.

Maybe the others in the corporation want to continue on. That means you’re getting out of the business, but the corporation continues. You’re just no longer part of it afterwards.

Or perhaps, you think that dissolution is a solution to a current corporate crisis, like poor sales and huge expenditures. The discussion may result in an alternative solution to the problem.

However, you can proceed with the dissolution when you call for a vote, and a majority of the board members vote to dissolve the corporation as well.

Shareholders’ Meeting

The board meeting involves the board members and officers of the corporation. These are the appointed decision-makers for the company.

But you also need the approval of the shareholders, since they’re the actual owners of the corporation. It’s very possible that the shareholders may just end up removing all the board members and putting in new ones.

The shareholders will also have to vote for dissolution if the process is to proceed. How many votes are needed for the approval will depend on the state. In most states, you just need a simple majority. That means having 50% of the vote, plus 1 vote. But some states may require a ⅔ majority.

Just keep in mind that these voting processes must abide by the bylaws of the corporation. In addition, you must also obey any state laws and regulations pertaining to board and shareholders’ votes.

Step 2: Deal with the Formal Paperwork

This starts with the Certificate of Dissolution, which you need to file with the Secretary of State (in the state where your business is incorporated.

In most states, there’s an agency you can contact that can help with the needed documents and assist in the process. Usually, this agency is called the Incorporation Bureau or something similar (like Corporation Agency or Corporation Commission). You may even find this agency’s website, so you can file the Certificate of Dissolution online.

You may have to fulfill some requirements to get the state consent to dissolution. Usually, this means paying you’ve paid all the state taxes and fees due.

Once you’re done with the state level, you have to notify the IRS. You then have to make sure you’ve paid all the federal taxes due.

Aside from the government taxes and fees, you also have to make sure you close down all outstanding debts to suppliers and creditors. Just because you’ve dissolved your corporation doesn’t mean you get to escape all your financial obligations.

Step 3: End All Business Affairs

Once you’ve paid all taxes and debts, you need to close down everything. Close all the business bank accounts, service accounts, and credit lines held in your corporate name. Terminate all permits and licenses.

Notify all your vendors and customers as well. That way, they have a reasonable time to claim any money your corporation owes them. Make sure you terminate all contracts.

Liquidate all the assets, which can help with the payment of any debts. Then the remaining assets may be distributed among the shareholders.

Get all these steps done properly, so that no one runs after you with lawsuits for unpaid debts or for any sort of disagreement regarding the distribution of corporate assets.

Final Words

Keep in mind, that the dissolution of the corporation doesn’t always have to be voluntary. The state can dissolve your corporation for a wide variety of reasons, including some reasons that only apply for corporations in particular states.

In general, however, the state can dissolve your corporation for:

  • Not paying taxes
  • Failing to file the annual report
  • Some type of fraud
  • Not having a registered agent (for thirty days)

Shareholders may also sue to dissolve a corporation. This may happen when they’re dissatisfied with the performance of the directors and other officers in charge of the corporation. It can happen when the directors act illegally or fraudulently, or if corporate assets are wasted or misapplied. Shareholders may also sue for dissolution when the directors are deadlocked in the management of corporate operations and the shareholders don’t have any other effective way of breaking the deadlock.

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