The end of the year is an excellent time to consider whether you should dissolve an unused business entity. Perhaps you have an LLC that once owned a rental property or an s-corporation that once operated a business. If there are no longer operations or assets in your entity and there is no intention to place new business or assets in the entity, then you should consider dissolving your entity.
Dissolution is the legal method of closing an entity and its registration with the state. Following dissolution, the entity is no longer active with the state and you cannot operate a business in the company name. There are a number of reasons to dissolve an inactive entity. First, dissolution will end annual on-going fees that are charged by the state (I’m talking to you California clients). Second, dissolution and the filing of a final tax return (where applicable) for the company will end on-gong tax return reporting. This is of particular benefit to corporations and partnership LLCs as they are all required to file annual tax returns. If the company ends up being dissolved after January 1st then you may end up being required to file a 2014 tax return for the company and may also be subject to 2014 state fees.
If a claim or lawsuit is later filed against the dissolved entity, the corporate veil will still be available to protect the business owner’s personal assets from the business so long as the liability arose when the entity was in good standing. As a result, owners of a dissolved a entity still receive liability protection from the company for liabilities that occurred when the entity was active and registered.
A proper dissolution requires a filing with the state of organization/incorporation as well as the drafting or company minutes documenting the dissolution and wind down of the company. Remember, you will also want to inform you accountant as to the dissolution to insure that a final tax return is filed. Contact the law firm at 435-586-9366 if you are need of a dissolution by year end.
By: Mat Sorensen