Can you dissolve a corporation if you owe state taxes and city taxes?
Full Question:
Can you dissolve a corporation if you owe state taxes and city taxes or do you have to declare bankruptcy? Our debts exceed our assets and we are concerned about future dealings under the same corporation.
02/04/2009 |
Category: Corporations ยป Corporate Di... |
State: California |
#15148
Answer:
Dissolution is the termination of a corporation, either voluntarily by resolution, paying debts, distributing assets and filing dissolution documents with the Secretary of State; or by state suspension for not paying corporate taxes or some other action of the government. The primary steps involved when dissolving a company include corporate action to approve the dissolution; filing articles of dissolution with the state; filing all necessary federal, state, and local tax forms; statutory notification to creditors; settling creditors' claims and distribution of remaining business assets.
In California, dissolution documents cannot be filed on behalf of a corporation that has been suspended by the California Franchise Tax Board pursuant to Revenue and Taxation Code Sections 23301, 23301.5 and 23775.
The following are California statutes:
§ 1900 Corp.
(a) Any corporation may elect voluntarily to wind up and dissolve
by the vote of shareholders holding shares representing 50 percent
or more of the voting power.
(b) Any corporation which comes within one of the following
descriptions may elect by approval by the board to wind up and
dissolve:
(1) A corporation as to which an order for relief has been entered
under Chapter 7 of the federal bankruptcy law.
(2) A corporation which has disposed of all of its assets and has
not conducted any business for a period of five years immediately
preceding the adoption of the resolution electing to dissolve the
corporation.
(3) A corporation which has issued no shares.
§ 1900.5 Corp.
(a) Notwithstanding any other provision of this division, when a
corporation has not issued shares, a majority of the directors, or, if no
directors have been named in the articles or been elected, the
incorporator or a majority of the incorporators may sign and verify a
certificate of dissolution stating the following:
(1) That the certificate of dissolution is being filed within 12 months
from the date the articles of incorporation were filed.
(2) That the corporation does not have any debts or other liabilities,
except as provided in paragraph (3).
(3) That the tax liability will be satisfied on a taxes paid basis
or that a person or corporation or other business entity assumes the tax
liability, if any, of the dissolving corporation and is responsible for
additional corporate taxes, if any, that are assessed and that become due
after the date of the assumption of the tax liability.
(4) That a final franchise tax return, as described by Section 23332
of the Revenue and Taxation Code, has been or will be filed with the
Franchise Tax Board as required under Part 10.2 (commencing with
Section 18401) of Division 2 of the Revenue and Taxation Code.
(5) That the corporation has not conducted any business from the time
of the filing of the articles of incorporation.
(6) That the known assets of the corporation remaining after payment
of, or adequately providing for, known debts and liabilities have been
distributed to the persons entitled thereto or that the corporation
acquired no known assets, as the case may be.
(7) That a majority of the directors, or, if no directors have been
named in the articles or been elected, the incorporator or a majority
of the incorporators authorized the dissolution and elected to dissolve the
corporation.
(8) That the corporation has not issued any shares, and if the
corporation has received payments for shares from investors, those
payments have been returned to those investors.
(9) That the corporation is dissolved.
(b) A certificate of dissolution signed and verified pursuant to
subdivision (a) shall be filed with the Secretary of State. The Secretary
of State shall notify the Franchise Tax Board of the dissolution.
(c) Upon filing a certificate of dissolution pursuant to
subdivision (b), a corporation shall be dissolved and its powers, rights, and
privileges shall cease.
§ 1901 Corp.
(a) Whenever a corporation has elected to wind up and dissolve a
certificate evidencing such election shall forthwith be filed.
(b) The certificate shall be an officers' certificate or shall be
signed and verified by at least a majority of the directors then in
office or by one or more shareholders authorized to do so by shareholders
holding shares representing 50 percent or more of the voting power and
shall set forth:
(1) That the corporation has elected to wind up and dissolve.
(2) If the election was made by the vote of shareholders, the number
of shares voting for the election and that the election was made by
shareholders representing at least 50 percent of the voting power.
(3) If the certificate is executed by a shareholder or shareholders,
that the subscribing shareholder or shareholders were authorized to
execute the certificate by shareholders holding shares representing at
least 50 percent of the voting power.
(4) If the election was made by the board pursuant to subdivision (b)
of Section 1900, the certificate shall also set forth the
circumstances showing the corporation to be within one of the categories
described in said subdivision.
(c) If an election to dissolve made pursuant to subdivision (a)
of Section 1900 is made by the vote of all the outstanding shares and a
statement to that effect is added to the certificate of dissolution
pursuant to Section 1905, the separate filing of the certificate
of election pursuant to this section is not required.
§ 1903 Corp.
(a) Voluntary proceedings for winding up the corporation commence
upon the adoption of the resolution of shareholders or directors
of the corporation electing to wind up and dissolve, or upon the filing
with the corporation of a written consent of shareholders thereto.
(b) When a voluntary proceeding for winding up has commenced, the
board shall continue to act as a board and shall have full powers to
wind up and settle its affairs, both before and after the filing
of the certificate of dissolution.
(c) When a voluntary proceeding for winding up has commenced, the
corporation shall cease to carry on business except to the extent
necessary for the beneficial winding up thereof and except during
such period as the board may deem necessary to preserve the
corporation's goodwill or going-concern value pending a sale of its
business or assets, or both, in whole or in part. The board shall
cause written notice of the commencement of the proceeding for
voluntary winding up to be given by mail to all shareholders (except
no notice need be given to the shareholders who voted in favor
of winding up and dissolving the corporation) and to all known creditors
and claimants whose addresses appear on the records of the
corporation.
§ 1904 Corp.
If a corporation is in the process of voluntary winding up, the
superior court of the proper county, upon the petition of (a) the
corporation, or (b) a shareholder or shareholders who hold shares
representing 5 percent or more of the total number of any class
of outstanding shares, or (c) any shareholder or shareholders of a close
corporation, or (d) three or more creditors, and upon such notice to
the corporation and to other persons interested in the corporation as
shareholders and creditors as the court may order, may take
jurisdiction over such voluntary winding up proceeding if that
appears necessary for the protection of any parties in interest. The
court, if it assumes jurisdiction, may make such orders as to any and
all matters concerning the winding up of the affairs of the
corporation and for the protection of its shareholders and creditors
as justice and equity may require. The provisions of Chapter 18
(commencing with Section 1800) (except Sections 1800 and 1801) shall
apply to such court proceedings.
§ 1905 Corp.
(a) When a corporation has been completely wound up without court
proceedings therefor, a majority of the directors then in office shall
sign and verify a certificate of dissolution stating:
(1) That the corporation has been completely wound up.
(2) That its known debts and liabilities have been actually paid,
or adequately provided for, or paid or adequately provided for as far as its
assets permitted, or that it has incurred no known debts or liabilities,
as the case may be. If there are known debts or liabilities for payment
of which adequate provision has been made, the certificate shall state
what provision has been made, setting forth the name and address of the
corporation, person or governmental agency that has assumed or guaranteed
the payment, or the name and address of the depositary with which deposit
has been made or any other information that may be necessary to enable
the creditor or other person to whom payment is to be made to appear and
claim payment of the debt or liability.
(3) That its known assets have been distributed to the persons entitled
thereto or that it acquired no known assets, as the case may be.
(4) That the corporation is dissolved.
(5) If no certificate of election is to be filed pursuant to
subdivision (c) of Section 1901, that the election to dissolve was made
by the vote of all the outstanding shares.
(6) That a final franchise tax return, as described by Section 2332
of the Revenue and Taxation Code, has been or will be filed with the
Franchise Tax Board, as required under Part 10.2 (commencing with
Section 18401) of Division 2 of the Revenue and Taxation Code.
(b) The certificate of dissolution shall be filed with the Secretary
of State and thereupon the corporate powers, rights, and privileges of the
corporation shall cease. The Secretary of State shall notify the
Franchise Tax Board of the dissolution.
§ 1905.1 Corp.
If a corporation has filed a certificate of dissolution with the
Secretary of State on or after January 1, 1992, and before the effective
date of the act adding this section, pursuant to Section 1905, prior to
its amendment by the act adding this section, and the Franchise Tax Board
has not, as of that effective date, made the determination required by
subdivision (c) of Section 1905, prior to its amendment by the act adding
this section, then the corporation shall be dissolved as of the date
of filing the certificate of dissolution and thereupon its corporate
existence shall cease.
§ 1906 Corp.
Except as otherwise provided by law, if the term of existence for
which any corporation was organized expires without renewal
or extension thereof, the board shall terminate its business and wind up
its affairs; and when the business and affairs of the corporation
have been wound up a majority of the directors shall execute and file
a certificate conforming to the requirements of Section 1905.
§ 1907 Corp.
(a) The board, in lieu of filing the certificate of dissolution,
may petition the superior court of the proper county for an order
declaring the corporation duly wound up and dissolved. Such petition
shall be filed in the name of the corporation.
(b) Upon the filing of the petition, the court shall make an order
requiring all persons interested to show cause why an order should
not be made declaring the corporation duly wound up and dissolved and
shall direct that the order be served by notice to all creditors,
claimants and shareholders in the same manner as the notice given
under subdivision (b) of Section 1807.
(c) Any person claiming to be interested as shareholder, creditor
or otherwise may appear in the proceeding at any time before the
expiration of 30 days from the completion of publication of the order
to show cause and contest the petition, and upon failure to appear
such person's claim shall be barred.
(d) Thereafter an order shall be entered and filed and have the
effect as prescribed in Sections 1808 and 1809.
§ 2001 Corp.
The powers and duties of the directors (or other persons appointed
by the court pursuant to Section 1805) and officers after
commencement of a dissolution proceeding include, but are not limited
to, the following acts in the name and on behalf of the corporation:
(a) To elect officers and to employ agents and attorneys to
liquidate or wind up its affairs.
(b) To continue the conduct of the business insofar as necessary
for the disposal or winding up thereof.
(c) To carry out contracts and collect, pay, compromise and settle
debts and claims for or against the corporation.
(d) To defend suits brought against the corporation.
(e) To sue, in the name of the corporation, for all sums due
or owing to the corporation or to recover any of its property.
(f) To collect any amounts remaining unpaid on subscriptions to
shares or to recover unlawful distributions.
(g) To sell at public or private sale, exchange, convey
or otherwise dispose of all or any part of the assets of the corporation
for cash in an amount deemed reasonable by the board without
compliance with the provisions of Section 1001 (except
subdivision (d) thereof), or (subject to compliance with the provisions
of Sections 1001, 1200 and 1201, but Chapter 13 (commencing with
Section 1300) shall not be applicable thereto) upon such other terms and
conditions and for such other considerations as the board deems
reasonable or expedient; and to execute bills of sale and deeds
of conveyance in the name of the corporation.
(h) In general, to make contracts and to do any and all things in
the name of the corporation which may be proper or convenient for the
purposes of winding up, settling and liquidating the affairs of the
corporation.
§ 2004 Corp.
After determining that all the known debts and liabilities of a
corporation in the process of winding up have been paid or adequately
provided for, the board shall distribute all the remaining corporate
assets among the shareholders according to their respective rights
and preferences or, if there are no shareholders, to the persons
entitled thereto. If the winding up is by court proceeding
or subject to court supervision, the distribution shall not be made
until after the expiration of any period for the presentation
of claims which has been prescribed by order of the court.
§ 2005 Corp.
The payment of a debt or liability, whether the whereabouts of the
creditor is known or unknown, has been adequately provided for if the
payment has been provided for by either of the following means:
(a) Payment thereof has been assumed or guaranteed in good faith by
one or more financially responsible corporations or other persons
or by the United States government or any agency thereof, and the
provision (including the financial responsibility of such
corporations or other persons) was determined in good faith and with
reasonable care by the board to be adequate at the time of any
distribution of the assets by the board pursuant to this chapter.
(b) The amount of the debt or liability has been deposited as
provided in Section 2008.
This section does not prescribe the exclusive means of making
adequate provision for debts and liabilities.
§ 2010 Corp.
(a) A corporation which is dissolved nevertheless continues to exist
for the purpose of winding up its affairs, prosecuting and defending
actions by or against it and enabling it to collect and discharge
obligations, dispose of and convey its property and collect and divide
its assets, but not for the purpose of continuing business except so far
as necessary for the winding up thereof.
(b) No action or proceeding to which a corporation is a party abates by
the dissolution of the corporation or by reason of proceedings for
winding up and dissolution thereof.
(c) Any assets inadvertently or otherwise omitted from the winding up
continue in the dissolved corporation for the benefit of the persons
entitled thereto upon dissolution of the corporation and on realization
shall be distributed accordingly.
§ 2011 Corp.
(a)
(1) Causes of action against a dissolved corporation, whether
arising before or after the dissolution of the corporation, may be
enforced against any of the following:
(A) Against the dissolved corporation, to the extent of its
undistributed assets, including, without limitation, any insurance assets
held by the corporation that may be available to satisfy claims.
(B) If any of the assets of the dissolved corporation have been
distributed to shareholders, against shareholders of the dissolved
corporation to the extent of their pro rata share of the claim or to the
extent of the corporate assets distributed to them upon dissolution
of the corporation, whichever is less.
A shareholder's total liability under this section may not exceed the
total amount of assets of the dissolved corporation distributed to the
shareholder upon dissolution of the corporation.
(2) Except as set forth in subdivision (c), all causes of action
against a shareholder of a dissolved corporation arising under this
section are extinguished unless the claimant commences a proceeding to
enforce the cause of action against that shareholder of a dissolved
corporation prior to the earlier of the following:
(A) The expiration of the statute of limitations applicable
to the cause of action.
(B) Four years after the effective date of the dissolution of the
corporation.
(3) As a matter of procedure only, and not for purposes of determining
liability, shareholders of the dissolved corporation may be sued in the
corporate name of the corporation upon any cause of action against the
corporation. This section does not affect the rights of the corporation
or its creditors under Section 2009, or the rights, if any, of creditors
under the Uniform Fraudulent Transfer Act, which may arise against the
shareholders of a corporation.
(4) This subdivision applies to corporations dissolved on and after
January 1, 1992. Corporations dissolved prior to that date are subject to
the law in effect prior to that date.
(b) Summons or other process against such a corporation may be served
by delivering a copy thereof to an officer, director or person having
charge of its assets or, if no such person can be found, to any agent
upon whom process might be served at the time of dissolution. If none
of such persons can be found with due diligence and it is so shown by
affidavit to the satisfaction of the court, then the court may make an
order that summons or other process be served upon the dissolved
corporation by personally delivering a copy thereof, together with a copy
of the order, to the Secretary of State or an assistant or deputy
secretary of state. Service in this manner is deemed complete on the 10th
day after delivery of the process to the Secretary of State.
(c) Every such corporation shall survive and continue to exist
indefinitely for the purpose of being sued in any quiet title action. Any
judgment rendered in any such action shall bind each and all of its
shareholders or other persons having any equity or other interest in such
corporation, to the extent of their interest therein, and such action
shall have the same force and effect as an action brought under the
provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure.
Service of summons or other process in any such action may be made as
provided in Chapter 4 (commencing with Section 413.10) of Title 5
of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
(d) Upon receipt of such process and the fee therefor, the Secretary
of State forthwith shall give notice to the corporation as provided in
Section 1702.
(e) For purposes of Article 4 (commencing with Section 19071)
of Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation Code,
the liability described in this section shall be considered a liability
at law with respect to a dissolved corporation.
§ 23301 Rev. & Tax.
Except for the purposes of filing an application for exempt status
or amending the articles of incorporation as necessary either to perfect
that application or to set forth a new name, the corporate powers, rights
and privileges of a domestic taxpayer may be suspended, and the exercise
of the corporate powers, rights and privileges of a foreign taxpayer in
this state may be forfeited, if any of the following conditions occur:
(a) If any tax; penalty, or interest, or any portion thereof, that is
due and payable under Chapter 4 (commencing with
Section 19001) of Part 10.2, or under this part, either at the
time the return is required to be filed or on or before the 15th day
of the ninth month following the close of the taxable year, is not paid on
or before 6 p.m. on the last day of the 12th month after the close of the
taxable year.
(b) If any tax, penalty, or interest, or any portion thereof, due and
payable under Chapter 4 (commencing with Section 19001)
of Part 10.2, or under this part, upon notice and demand from the Franchise
Tax Board, is not paid on or before 6 p.m. on the last day of the 11th
month following the due date of the tax.
(c) If any liability, or any portion thereof, which is due and payable
under Article 7 (commencing with Section 19131)
of Chapter 4 of Part 10.2, is not paid on or before 6 p.m. on the last day
of the 11th month following the date that the tax liability is due and
payable.
§ 23301.5 Rev. & Tax.
Except for the purposes of filing an application for exempt status
or amending the articles of incorporation as necessary either to
perfect that application or to set forth a new name, the corporate
powers, rights, and privileges of a domestic taxpayer may be
suspended, and the exercise of the corporate powers, rights, and
privileges of a foreign taxpayer in this state may be forfeited, if a
taxpayer fails to file a tax return required by this part.
§ 23331 Rev. & Tax.
(a) For the purposes of this article, the effective date
of dissolution of a corporation is the date on which the
certified copy of the court decree, judgment, or order
declaring the corporation duly wound up and dissolved is
filed in the office of the Secretary of State or the date on
which the certificate of winding up, if necessary, and the
certificate of dissolution are filed in the office of the
Secretary of State. For the purposes of this article, the
effective date of withdrawal of a foreign corporation is the
date on which the certificate of withdrawal is filed in the
office of the Secretary of State.
(b) The Secretary of State shall, through an information
program and by forms and instructions provided to taxpayers,
recommend that all documents required by this article to be
filed with the Secretary of State be sent, if mailed, by
certified mail with return receipt requested. The Secretary
of State shall also notify taxpayers that receipt
of documents by the Secretary of State pursuant to this
article will be acknowledged within 21 days of receipt.
(c) On or before 21 days after their receipt, the Secretary
of State shall provide a taxpayer with acknowledgment of the
receipt of documents submitted by a taxpayer pursuant to this
article.
§ 23332 Rev. & Tax.
(a) Except in the case of a taxpayer subject to the provisions
of Section 23222a, any taxpayer which is dissolved or withdraws from the
state during any taxable year shall pay a tax only for the months of the
taxable year which precede the effective date of the dissolution
or withdrawal, according to or measured by (1) the net income of the
preceding income year or (2) a percentage of net income determined by
ascertaining the ratio which the months of the taxable year, preceding
the effective date of dissolution or withdrawal, bears to the months
of the income year, whichever is the lesser amount. The taxes levied under
this chapter shall not be subject to abatement or refund because of the
cessation of business or corporate existence of any taxpayer pursuant to
a reorganization, consolidation, or merger (as defined by
Section 23251). In any event, each corporation shall pay a tax not subject to
offset for the period in an amount equal to the minimum tax prescribed by
Section 23153.
(b) The provisions of subdivision (a) shall be applied only with
respect to taxpayers which dissolve or withdraw before January 1, 1973.
On and after that date, the tax for the taxable year in which the
taxpayer ceases doing business, dissolves or withdraws shall be
determined under the appropriate provisions of Section 23151.1, 23153,
23181, or 23183, whichever is applicable.
(c)
(1) A corporation shall not be subject to the minimum franchise tax
imposed by this chapter for a taxable year if the corporation does all
of the following:
(A) Files a timely final franchise tax return for a taxable year with
the Franchise Tax Board.
(B) Does not do business in this state after the end of the taxable
year for which the final franchise tax return was filed.
(C)
(i) In the case of a corporation other than a corporation described
in clause (ii), files a certificate of dissolution or surrender with the
Secretary of State, in accordance with Sections 1809, 1905, 2112, 6615,
8615, and 12635 of the Corporations Code and Section 3126 of the
Financial Code, before the end of the 12-month period beginning with the
date the final franchise tax return was filed.
(ii) In the case of a limited liability company that is a corporation
pursuant to subdivision (c) of Section 23038, files a certificate
of cancellation with the Secretary of State, in accordance with
Section 17356 or 17455 of the Corporations Code, before the end of the 12-month
period beginning with the date the final franchise tax return was filed.
(2) For purposes of this subdivision, a "final franchise tax return" is
a return filed pursuant to Section 18601 on or before the due date of the
return, as extended, that the taxpayer designates in the manner
prescribed by the Franchise Tax Board as the taxpayer's final franchise
tax return for purposes of the tax imposed under this chapter. A final
franchise tax return for purposes of the tax imposed under this
chapter is a return filed pursuant to Section 18601 where the taxpayer is not
required to file a subsequent return to reflect the imposition of tax
under this chapter.
§ 23332.5 Rev. & Tax.
If a financial corporation ceases doing business, dissolves
or withdraws from the state during any taxable year, the tax for the taxable
year during which cessation of doing business, dissolution or withdrawal
occurs shall be computed as prescribed by subdivision (b) or (d)
of Section 23183, 23183.1, or
23183.2.
§ 23333 Rev. & Tax.
(a) A taxpayer subject to Section 23186 shall, if it
dissolves or withdraws prior to the date the rate is determined under
Section 23186, pay a tax under
Section 23332 at the maximum rate prescribed by
Section 23186. If the rate is subsequently determined to be less
than the maximum prescribed by Section 23186, a refund
shall, within 30 days of that determination, be made as prescribed by
Chapter 6 (commencing with Section 19301) of Part 10.2.
(b) That part of the tax thus determined which is in excess of the rate
specified in Section 23151 shall be collected as a demand
for second installment under Chapter 4 (commencing with
Section 19001) of Part 10.2.
§ 23335 Rev. & Tax.
(a) Any return filed pursuant to Section 18601 that the taxpayer
designates in the appropriate place on the form provided by the Franchise
Tax Board as the taxpayer's final franchise tax return as the result of a
dissolution or withdrawal shall be treated as a request for information
on how to properly dissolve or withdraw.
(b) If a taxpayer has filed a return as described in subdivision (a),
the Franchise Tax Board shall provide the taxpayer with information
regarding all documents that are required by this article to be filed
with the Franchise Tax Board and the Secretary of State.
§ 23775 Rev. & Tax.
Except for purposes of amending the articles of incorporation to set
forth a new name, under regulations prescribed by the Franchise Tax
Board, the corporate powers, rights and privileges of an exempt domestic
corporation may be suspended and the exercise of the corporate powers,
rights and privileges of a foreign exempt corporation in this state may
be forfeited if the organization fails to file the annual return
or statement required under Section 23772 or 23774, or pay any amount due under
Section 23703 or 23772 on or before the last day
of the 12th month following the close of the taxable year.
