12 May How To Dissolve A Company
How To Dissolve A Company*
Many articles are written about startups and how to launch a company. Far fewer articles are written about how to close down a company, even though that part of a company’s lifecycle is nearly inevitable: if a company isn’t eventually sold or acquired, at some point in its lifecycle it will come to an end. Yes, many companies are tremendously successful, and many companies last for decades, if not longer. But even great, enduring companies will inevitably stop doing business, just like their small business counterparts.
The legal term for ending the lifecycle of a company is dissolution. Because there isn’t much helpful information online — at least as of the writing of this article — explaining the meaning and significance of dissolution, I’m writing this article to explain the process, including setting forth the steps about how to properly dissolve a company. I’m also writing this article from the perspective of an Oregon corporation that is not registered to do business in any other states, to keep this article as straightforward as possible.
Keep in mind that if your business is an Oregon LLC, then the process will be different. If your business was formed in a different state, then the dissolution process will be set forth in the corporate law of that state. If your business is registered to do business in multiple states, then you’ll need to comply with the corporate law requirements of all states in which your company is registered to do business when dissolving.
First, let’s get administrative dissolution out of the way. If a company — your company, perhaps? — has been administratively dissolved by the Oregon Secretary of State’s office, that is most likely because the person responsible for the company failed to pay the annual renewal fee of $100 and file an annual report. The Oregon Business Corporation Act fortunately allows administratively dissolved companies to be reinstated for up to five years after dissolution, upon the filing of a request for reinstatement and payment of an additional penalty fee. However, during the period within which the company is administratively dissolved — this is important — the company “may not carry on any activities except activities that are necessary or appropriate to wind up and liquidate the corporation’s business and affairs … and notify claimants ….”
This means the company is not permitted to carry on as a going concern (i.e., conduct business) while it is administratively dissolved. It also means that the company’s owner(s) could be personally liable for the debts incurred during the period of administrative dissolution, effectively nullifying the point of having formed a company in the first place.
So, if your company is administratively dissolved — you can check here to find out — and you are within the five year window and want to keep your company active as a going concern, reinstate it.
Steps to Properly Dissolve An Oregon Corporation
The steps to properly dissolve your Oregon corporation will depend on the extent to which your corporation did business at the time the decision to dissolve is made.
Option 1: Dissolution Where The Corporation Never Commenced Business
If your corporation has not issued shares and has not commenced business, such that the corporation has no debts to be paid, then dissolution is simple: a majority of the incorporators or initial directors should file Articles of Dissolution with the Oregon Secretary of State’s office, completing the proper information under the Articles of Dissolution form. If the corporation opened any accounts under its name, those should be closed down. Any funds remaining in the accounts should be returned first to the corporation’s internal creditors — it will have no external creditors if there are no debts to be paid — and then second to the shareholders, completing the winding down and liquidation of the corporation.
Option 2: Dissolution Where The Corporation Conducted Minimal Business
If your corporation has commenced business or issued shares, then a vote will be required in order to dissolve. Either all of the shareholders can consent in writing to dissolution — the shareholders would execute a written consent to that effect — or, if not all shareholders will consent in writing, then the corporation’s board of directors may propose dissolution to the shareholders for their vote, and at least a majority of all shareholder votes must be cast in favor of dissolution, with the caveat that the board of directors can require a vote by a larger number of shares or a vote by voting groups of shareholders. If there are sufficient votes in favor of dissolution, then Articles of Dissolution should be filed with the Oregon Secretary of State’s office, with the appropriate information completed on that form.
If dissolution occurs under this scenario, where the corporation has conducted business, then the corporation’s shareholders and directors should also consider adopting a formal plan of liquidation that will set forth how the company will wind up and liquidate its business and affairs, including collecting any remaining assets, disposing of properties that won’t be distributed to shareholders, discharging its liabilities, and distributing any remaining property to its shareholders, in full redemption of their shares.
Option 3: Dissolution Where The Corporation Conducted More Extensive Business
Dissolution is not a get-out-of-jail-free card: that is, dissolution will not prevent legitimate claims against the corporation, whether those claims are pending at the time of dissolution or they are commenced following dissolution. This point becomes more important where a business has conducted more extensive business, which would make claims against the corporation more likely.
For companies in this category, in addition to completing all of the steps under option 2, above, the company should also consider documenting in its plan of liquidation how claims against the company will be addressed, along with setting aside a reserve fund to pay for contingent or unknown liabilities, and proactively taking the steps to resolve any known claims and unknown claims.
The Oregon Business Corporation Act, under ORS 60.641, explains how a dissolved corporation may dispose of the known claims against it:
“The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
Describe information that must be included in a claim;
Provide a mailing address where a claim may be sent;
State the deadline, which may not be fewer than 120 days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
State that the claim will be barred if not received by the deadline.”
A known claim will be barred if a claimant who was given written notice does not deliver the claim to the dissolved corporation by the deadline or a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within 90 days from the effective date of the rejection notice.
To dispose of unknown claims, the Oregon Business Corporation Act also provides Oregon corporations with a procedure to follow, under ORS 60.644. To do so, the dissolved corporation may publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice, which must:
“Be published one time in a newspaper of general circulation in the county where the dissolved corporation’s principal office is located, or if the principal office is not in [Oregon], where its registered office is or was last located;
Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
State that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within five years after the publication of the notice.”
If the dissolved corporation publishes a newspaper notice in accordance with those requirements, the claim of an unknown claimant may be barred unless that claimant commences a proceeding to enforce the claim against the dissolved corporation within five years after the publication date of the newspaper notice. (See ORS 60.644(3)(a)-(c) for the exact statutory language.)
Enforceability of Known and Unknown Claims
All claims against dissolved corporations that are not barred may still be enforced against the corporation (hence my reference to dissolution not being a get-out-of-jail-free card). In particular, ORS 60.645 provides:
“A claim against a dissolved corporation that is not barred under ORS 60.641 or 60.644 may be enforced:
Against the dissolved corporation to the extent of its undistributed assets; or
If the assets have been distributed in liquidation, against the shareholder of the dissolved corporation to the extent of the shareholder’s pro rata share of the claim or the corporate assets distributed to the shareholder in liquidation, whichever is less. A shareholder’s total liability for all claims under this section may not exceed the total value of assets distributed to the shareholder, as of the date or dates of distribution, less any liability of the corporation paid on behalf of the corporation by that shareholder after the date of the distribution.”
This means, of course, that a corporation should be wary of hastily closing its doors and dissolving without properly addressing all of its creditors’ claims, as some of those claims could follow the shareholders post-dissolution.
(*This article is a longer form, and more in-depth, version of our previously published how-to guide about how to dissolve an Oregon corporation. This article ideally should be read in conjunction with that one.)
Author: Andrew Harris
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