How Are Debts Paid When a Business Closes?
Corporate dissolution tips in OregonBy S.M. Oliva | Last updated on January 11, 2023
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- File Your Final Paperwork With the IRS
- File Articles of Dissolution
- Notify All Known (and Unknown) Creditors
- Distribute Any Remaining Assets
File Your Final Paperwork With the IRSEven if you are no longer actively conducting business, your corporation still needs to report its final taxable activities to the IRS, as well as state and local authorities. Make sure the corporation has made its final tax deposits, including employee withholding taxes, and you have issued any necessary W-2s or 1099s. You may also need to report the sale or exchange of any business assets as part of the closing process.
File Articles of DissolutionJust as you filed articles of incorporation when starting a business, you must also file articles of dissolution to officially close it. Articles of dissolution are filed with the Oregon Secretary of State. The articles should contain the date the dissolution was authorized and the result of any shareholder vote on the action. “In the old days,” says Ferris, “there was a formal plan of dissolution, and liquidation would be presented by the board to the shareholders. Then that plan would be filed along with the articles of dissolution. It’s become a little less formal now, but it’s still a good idea to go through those steps, because they create a very good discipline, which is really the main thing you’re looking for in this process.”
Notify All Known (and Unknown) CreditorsThe decision to dissolve a corporation does not automatically invalidate its outstanding debts. Remember, a dissolution is not a bankruptcy, so your corporation will still need to deal with its creditors, vendors, unpaid employees, and anyone else who is owed money or property. Under Oregon law, a corporation must “notify its known claimants in writing of the dissolution at any time after its effective date.” The notice must give the claimant at least 120 days to file a claim. The dissolved corporation must also file a public notice “in a newspaper of general circulation” in the county where it had its principal office. This notice targets any unknown claimants. As a general rule, unknown claimants may take legal action within five years of the date the notice was published to recover any money it is owed.
Distribute Any Remaining AssetsThe corporation’s board of directors or shareholders should adopt a formal liquidation plan to manage the orderly payment of claims and distribution of company assets. Keep in mind, dissolution does not automatically transfer title to any assets under Oregon law. Every asset of the corporation must be distributed to a creditor, claimant, or shareholder. If a person entitled to a distribution of corporate assets cannot be located within one year of dissolution, Oregon law mandates the asset in question be reduced to cash and deposited with the Department of State Lands, which will hold the funds until the person appears to claim them. These are just a few of the legal issues that need to be addressed when dissolving an Oregon corporation. Contact a law firm and a qualified Oregon business attorney can advise you on more specific steps applicable to your corporation’s unique circumstances. And remember: “Carefully think through all the assets, liabilities, ramifications—that’s really the main thing,” says Ferris. “Take your time, be careful, and don’t be in a hurry.” For more information on this area, see our overviews of mergers and acquisitions and business and corporate law.
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