How to Dissolve an S Corporation in Every U.S State in 2024
As a founder, properly dissolving your S corporation is a crucial step that requires a solid understanding of the business dissolution process. It's a complex undertaking that involves navigating a maze of federal regulations and state-specific requirements.
But once you grasp the fundamentals of how the process works, you'll be well-equipped to legally terminate your corporation, safeguard your financial future, and minimize the risk of any legal repercussions.
In this blog, you'll find two essential resources to help you successfully close your S corp:
A step-by-step guide that walks you through the entire process of shutting down your S corporation.
A detailed breakdown of the specific S corp dissolution requirements for all 50 states, so you know exactly what to expect no matter where your business is located.
What is an S Corporation?
An S corporation (or S corp for short) is a type of business entity that offers its owners the benefits of pass-through taxation (similar to sole proprietorships and partnerships) while still providing the liability protection of a corporation.
This structure lets the corporation avoid double taxation (once to the corporation and again to the shareholders). Instead, profits and losses can pass through the S corporation to the shareholders' personal income and get taxed individually.
A Step-by-Step Guide on How to Dissolve an S Corporation
1. Shareholder Approval
S-corporation dissolution always starts with a formal shareholder vote, as outlined in the company bylaws, which usually requires a majority (50% shareholder votes) or supermajority (two-thirds [66.7%], three-quarters [75%], or more) to pass.
After the vote, document everything in the meeting minutes, including the dissolution decision, how the vote went down, and a signature from the right corporate officer. Then, maintain these records to prove the legality of the decision should the need arise in the future.
2. State Compliance
Once shareholders approve the dissolution, the next step is to file the Articles of Dissolution with the Secretary of State in the state where the corporation was first formed. This filing officially starts the dissolution process, outlines when the shareholders approved the dissolution, and confirms whether all liabilities are met.
If the corporation is active in other states, it'll need to handle additional paperwork in those states, too, which might include more dissolution documents or formal requests to stop operations.
3. IRS Compliance
You'll need to inform the IRS about the dissolution by filing Form 966 within 30 days of voting to dissolve. This form alerts the IRS to your plans and includes important details like when the company started and when you decided to dissolve it.
Wrapping up your tax duties involves filing Form 1120-S for the corporation's final tax year to account for all financial activities up to the dissolution date. Depending on how you handle your business assets, you might also need to file forms like Form 4797 if you sell any property.
4. Managing Assets and Liabilities
One of the big steps in winding up is liquidating or selling business assets—such as real estate, equipment, inventory (in the case of physical products), or digital assets like intellectual property, source code, cryptocurrencies, licensed digital media, etc.
The goal is to pay off creditors and then distribute whatever's left to the shareholders. To remain compliant, it's also critical to clear all outstanding debts, including loans and accounts payable, and settle all tax liabilities.
5. Handling Payroll and Employee Matters
Final payroll processing must ensure that all employees receive their owed wages and benefits, including accrued vacation and other compensations, until their final working day. It's also essential to settle payroll-related tax obligations with the IRS and state tax agencies to close employment tax accounts properly.
6. Tax Clearance and Documentation
Obtaining tax clearance from state agencies may be necessary to confirm all taxes are paid and as a prerequisite for finalizing the dissolution process. If your corporation does business in multiple states, make sure you understand each states’ tax clearance requirements and filing requirements to avoid substantial delays and penalties.
Preserve all records related to the dissolution and liquidation process to cover any late claims or audits. Retention requirements are a complex web of statutes covering different types of documents. For example, employment records must be kept for three years, while hiring records must only be held for one. Familiarize yourself with the various requirements so you are prepared for any future audits. Also, remember to cancel any business licenses, update business directories, and notify everyone affected by your business closure to tidy up all the loose ends (even if it's not a state requirement).
S-Corporation Dissolution Requirements For Every State
While some aspects of the dissolution process are the same nationwide, state-specific requirements can vary significantly. The following table describes some of the nuances for all 50 states.
State | Articles of Dissolution | Tax Clearance Required | Publication Requirements | Additional Considerations |
Alabama (AL) | Yes (Certificate of Dissolution) | Yes | Yes | Must provide a local newspaper with proof of publication. |
Alaska (AK) | Yes (Articles of Dissolution) | No | No | Requires the dissolution to be approved by the shareholders, and the corporation must be in good standing with the state. |
Arizona (AZ) | Yes (Articles of Dissolution) | No | Yes | Requires publication of a notice of dissolution in a newspaper for three consecutive publications to inform creditors and the public. |
Arkansas (AR) | Yes (Articles of Dissolution) | Yes | No | Requires tax clearance from the Department of Finance and Administration. |
California (CA) | Yes (Certificate of Election to Wind Up and Dissolve, Certificate of Dissolution) | Yes (Franchise Tax Board clearance) | No | Requires board and shareholder approval. |
Colorado (CO) | Yes (Articles of Dissolution) | No | No | Shareholders must file online through the Secretary of State's website and approve by a majority vote. |
Connecticut (CT) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Department of Revenue Services) | No | Must file a final annual report along with the dissolution paperwork. |
Delaware (DE) | Yes (Certificate of Dissolution) | Yes (Tax clearance from the Delaware Division of Revenue) | No | Requires payment of all up-to-date franchise taxes, known for corporate-friendly laws. |
Florida (FL) | Yes (Articles of Dissolution) | No | No | None specified beyond filing with the Division of Corporations. |
Georgia (GA) | Yes (Articles of Dissolution) | No | No | Requires submission of a Notice of Intent to Dissolve prior to filing the Articles of Dissolution. |
Hawaii (HI) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Department of Taxation) | No | Must also file a final annual business report and a final tax return. |
Idaho (ID) | Yes (Certificate of Dissolution) | No | No | Filing includes a statement of intent to dissolve which must be approved by a majority of shareholders. |
Illinois (IL) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Illinois Department of Revenue) | No | Must submit a Notice of Intent to Dissolve before or at the same time as the Articles of Dissolution. |
Indiana (IN) | Yes (Articles of Dissolution) | No | No | Must ensure that all outstanding business activities are resolved prior to dissolution. |
Iowa (IA) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Iowa Department of Revenue) | No | Requires clearance for any outstanding taxes or fees before the dissolution can be finalized. |
Kansas (KS) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Kansas Department of Revenue) | No | Must submit a Notice of Dissolution before filing the Articles of Dissolution. |
Kentucky (KY) | Yes (Articles of Dissolution) | No | No | Requires a statement that the dissolution was authorized by the affirmative vote of the shareholders. |
Louisiana (LA) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Louisiana Department of Revenue) | Yes (Publication in a local newspaper) | Requires publication of the intent to dissolve to notify creditors and the public. |
Maine (ME) | Yes (Articles of Dissolution) | No | No | Must ensure all annual reports and fees are up to date before filing. |
Maryland (MD) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Comptroller of Maryland) | No | Must also file a final report and personal property return with the dissolution documents. |
Massachusetts (MA) | Yes (Articles of Voluntary Dissolution) | Yes (Tax clearance from the Massachusetts Department of Revenue) | No | Must file a final tax return along with proof of tax compliance. |
Michigan (MI) | Yes (Certificate of Dissolution) | No | No | Must ensure all annual reports and fees are up to date before filing for dissolution. |
Minnesota (MN) | Yes (Notice of Dissolution and Articles of Dissolution) | No | No | Requires a two-step process starting with a Notice of Intent to Dissolve followed by the Articles of Dissolution. |
Mississippi (MS) | Yes (Certificate of Dissolution) | No | No | Must file the certificate with the Secretary of State and ensure all annual reports are up to date. |
Missouri (MO) | Yes (Articles of Termination) | No | No | Requires the approval of the majority of the board of directors or the shareholders. |
Montana (MT) | Yes (Articles of Dissolution) | No | No | Dissolution must be approved by a majority vote of the shareholders. |
Nebraska (NE) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Nebraska Department of Revenue) | No | Must provide evidence of tax clearance before filing the final dissolution paperwork. |
Nevada (NV) | Yes (Articles of Dissolution) | No | No | Requires the majority of the board of directors and two-thirds of the voting shares to approve the dissolution. |
New Hampshire (NH) | Yes (Articles of Dissolution) | No | No | Requires a majority of the board of directors or the shareholders to approve the dissolution. |
New Jersey (NJ) | Yes (Certificate of Dissolution) | Yes (Tax clearance from the New Jersey Division of Revenue) | No | Must settle all state tax liabilities and obtain a tax clearance certificate before filing for dissolution. |
New Mexico (NM) | Yes (Articles of Dissolution) | No | No | Requires the approval from a majority of the shareholders. |
New York (NY) | Yes (Certificate of Dissolution) | Yes (Tax clearance from the Department of Taxation and Finance) | No | Must comply with Section 1003 of the Business Corporation Law. |
North Carolina (NC) | Yes (Articles of Dissolution) | Yes (Revenue Clearance Certificate from the NC Department of Revenue) | No | Must resolve all state tax liabilities before the Revenue Clearance Certificate is issued. |
North Dakota (ND) | Yes (Articles of Dissolution) | No | No | Requires a vote of the shareholders with a minimum number of affirmative votes based on their specific bylaws. |
Ohio (OH) | Yes (Certificate of Dissolution) | Yes (Tax clearance from the Ohio Department of Taxation) | No | Must ensure all taxes are paid and a tax clearance certificate is obtained before filing for dissolution. |
Oklahoma (OK) | Yes (Certificate of Dissolution) | Yes (Tax clearance from the Oklahoma Tax Commission) | No | Must settle all state tax liabilities and obtain a tax clearance certificate before filing for dissolution. |
Oregon (OR) | Yes (Articles of Dissolution) | No | No | Requires majority approval from the board of directors or the shareholders, depending on the bylaws. |
Pennsylvania (PA) | Yes (Certificate of Dissolution) | No | Yes (Publish notice in two newspapers) | Publication must be in general circulation and in a legal publication if available. |
Rhode Island (RI) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Rhode Island Division of Taxation) | No | Must obtain a tax clearance certificate to confirm no outstanding tax liabilities exist. |
South Carolina (SC) | Yes (Articles of Dissolution) | Yes (Tax clearance from the South Carolina Department of Revenue) | No | Requires a tax clearance certificate before the Secretary of State will approve the dissolution. |
South Dakota (SD) | Yes (Articles of Dissolution) | No | No | Requires that the dissolution be approved by the shareholders in accordance with the articles of incorporation or bylaws. |
Tennessee (TN) | Yes (Articles of Dissolution) | Yes (Tax clearance from the Tennessee Department of Revenue) | No | Requires clearance for any outstanding taxes or fees before the dissolution can be finalized. |
Texas (TX) | Yes (Certificate of Termination) | Yes (Tax clearance from Texas Comptroller) | No | Must resolve any franchise taxes due. |
Utah (UT) | Yes (Articles of Dissolution) | No | No | Requires majority approval from the board of directors or the shareholders, as outlined in the bylaws. |
Vermont (VT) | Yes (Articles of Dissolution) | No | Yes (Publication in a newspaper) | Publication of the dissolution is required to notify creditors and the general public. |
Virginia (VA) | Yes (Articles of Dissolution) | No | No | Straightforward filing with the State Corporation Commission, no tax clearance needed. |
Washington (WA) | Yes (Articles of Dissolution) | No | No | Requires the dissolution to be approved by a majority vote of the shareholders. |
West Virginia (WV) | Yes (Articles of Dissolution) | Yes (Tax clearance from the West Virginia State Tax Department) | No | Must obtain a tax clearance certificate indicating all state taxes have been paid. |
Wisconsin (WI) | Yes (Articles of Dissolution) | No | No | Requires that the dissolution be approved by a majority of the shareholders. |
Wyoming (WY) | Yes (Articles of Dissolution) | No | No | Minimal requirements. Primarily involves filing the articles with the state. |
Related: Here’s a blog discussing how long it takes to dissolve startups based on the business structure.
Conclusion
Having reached this far, you now know the complexity involved in shutting down an S corporation. While this blog serves as a guide to help founders understand the basics of S corp dissolution, taking a DIY approach could prove costly.
In addition to meeting federal and state requirements, there are a host of other challenges involved that require the right expertise to overcome. SimpleClosure offers holistic S corporation dissolution services that only require a few details from your end while we take care of the rest.
Our corporation dissolution services are legally sound, deliver results faster, and are far less costly than traditional means.