Dissolving a Corporation

You may have formed a corporation to transact business in Texas, only to realize later that it's not what you want. Similarly, you might have formed a corporation with a group of friends, but later realized that you can't work together. In any event, dissolving a Texas corporation will require you to complete several very important steps.

What Does it Mean to Dissolve a Corporation in Texas?

Dissolving a corporation means to officially end its existence. Dissolving a corporation also places the corporation and its shareholders beyond the reach of any debts and liabilities that remain after its dissolution.

The dissolution of a corporation in Texas is governed by the state's Business Corporation Act, as well as, various sections of the Texas Business Organizations Code (BOC), which governs all other Texas business entities as well.

Also, your corporation's Certificate of Formation or corporate Bylaws may specify certain requirements that must be met and/or procedures that must be followed to dissolve the corporation. Make sure that you follow any such requirements or procedures and officially document them in writing or in the official minutes of the related meeting.

The Process to Dissolve a Corporation in Texas

To dissolve a corporation formed in Texas, you must complete several tasks, collectively referred to as "winding up" the corporation.

While Texas corporations may be dissolved involuntarily by court order or by the Texas Secretary of State (due to failure to comply with corporate formalities and maintenance requirements, for example), this article deals exclusively with the voluntary dissolution of a Texas corporation by its Board of Directors or shareholders.

In most cases, the dissolution of a corporation in Texas will commence with either:

1. A resolution by its Board of Directors, followed by a vote of its shareholder; or
2. The written consent of all the corporation's shareholders.

In the first instance, your corporation's Board of Directors will resolve to dissolve the corporation and then request that the corporation's shareholders vote on the matter.

The shareholders must be given advance notice of at least 10 days. Then, unless otherwise specified in your corporation's Certificate of Formation or Bylaws, the resolution must pass by a majority vote of at least two-thirds of the corporation's voting shareholders.

In the second instance, all of the corporation's shareholders must sign a document consenting to the dissolution of the corporation. Afterward, the consent should be properly recorded in the corporation's records.

For small corporations, initiating the dissolution process by consent is often the easiest way to go. This is because the shareholders of a small corporation are often its directors as well. Thus, it is easier to obtain unanimous consent.

Winding Up a Texas Corporation

In many ways, dissolving a Texas Corporation is fairly straightforward. Technically, it is as simple as filing a Certificate of Termination with the Secretary of State along with a filing fee of $40.

But, before you can file a Certificate of Termination with the Secretary of State, you must "wind up" your corporation. Winding up your Corporation will require your corporation to cease all business activities, except for those necessary for winding up and complying with BOC requirements, including:

• Providing written notice to all persons or entities known to have a claim against the Corporation;
• Gathering and liquidating all assets owned by the Corporation, unless they are to be distributed to the corporation's shareholders later on;
• Prosecuting or defending any lawsuits initiated or filed against the corporation;
• Satisfying all of the Corporation's obligations, debts, and liabilities. This includes debts and liabilities owed to the corporation's shareholders (except for distributions);
• Distributing the Corporations remaining assets to its shareholders, in accordance with each shareholder's rights and interest in the Corporation; and
• Performing any other tasks necessary to wind up your Corporation's business affairs.

Certificate Account Status & Certificate of Dissolution

Once you have completed the "winding up" stage of Corporation dissolution in Texas, you will then need to obtain a Certificate of Account Status. This document, which can be obtained from the Texas Comptroller of Public Accounts by filing Comptroller's Form 05-359, verifies that you have satisfied all of your Corporation's taxes and corporate obligations and that the corporation is in good standing with the state.

The Certificate of Account Status will be needed to officially terminate your Corporation by filing a Certificate of Termination (Form 651) with the Secretary of State. The Certificate of Account Status must be attached to the Certificate of Termination, which must specify, among other things:

• The Corporation name and address;
• The names and addresses of each of the Corporation's directors;
• The file number your Corporation was assigned by the Secretary of State;
• The event or events that lead to the winding up of your Corporation (a vote of its shareholders or unanimous consent)
• An affirmation that your Corporation has fulfilled all requirements necessary under the BOC.
• The date upon which the termination of your Corporation will become effective, which can be either:
  1. The date you filed the Certificate of Termination;
  2. 90 days from the date you signed the Certificate of Termination; or
  3. The date upon which a specified future event will occur.