Voluntary Corporate Dissolution in New York
A New York registered company that does not want to continue in existence may pursue a voluntary dissolution. This is an out-of-court process that does not require a court order.
A New York corporation or limited liability company (LLC) may be voluntarily dissolved by a process of voluntary dissolution. To do this requires preparation of certain corporate documents and filings, and obtaining clearance from certain taxing authorities, as follows:
1. Shareholder Vote. Once the board of directors have approved a dissolution, unless otherwise provided in the certificate of incorporation, and depending on the date of incorporation, generally a vote of two-thirds of shareholders, or a majority vote of shareholders is required (members in the case of a LLC). Depending upon the number of shareholders and the provisions of the company’s Articles of Incorporation and By Laws, it may be possible to proceed based upon Written Consent from shareholders in lieu of a shareholders vote. Dissolution of a closely held business or small business will usually proceed based on written consents rather than voting.
2. Plan of Dissolution and Distribution of Assets. The corporation (or LLC) must prepare, typically with the assistance of its dissolution attorneys, and approve a Plan of Dissolution and Distribution of Assets. This is the document that details how the company plans to dissolve and what it will do with its assets
3. Consent from New York State Department of Taxation & Finance. The company needs to obtain written consent from the New York State Department of Taxation & Finance (“NYSDT”) which will check to see if the company owes back taxes and is current with filing of all required tax returns. If the company has filed all its returns and paid all of its taxes, including any due for a partial year up to the time of the request, NYSDT will issue a written consent for dissolution. Without this the company will be unable to dissolve following the voluntary corporate (or LLC) dissolution procedure. This means that a company will be unable to pursue a voluntary corporate (or LLC) dissolution if the company has outstanding tax liability (or is not current with its tax return filings). It could, however, still file for bankruptcy.
4. Certificate of Dissolution. This is a document that gets filed with the New York State Department of State along with the consent from NYSDT. The certificate of dissolution details certain information regarding the company and its dissolution.
5. Filings in Other Jurisdictions in Which Company Authorized to Transact Business. If the company is a NY company (corporation or LLC) that has registered to transact business in other states (for example, California), then in addition to filing documentation regarding the company’s dissolution with the NYS Dept. of State, similar filings would need to be made in the other states in which the company has registered to transact business by similar filings with the Dept. of State or Dept. of Corporations in those states. The foreign state filing requirements vary in each state, some merely require a certified copy of a document reflecting company dissolution in NY, while others have their own additional documents or forms that are required.
6. Winding up of Affairs. After dissolution a company is not supposed to engage in any business except for the purpose of winding up its affairs. This means it can complete existing contracts, sell or liquidate its assets for cash at public or private sale, compromise or pay its liabilities, and take any other action that are necessary for it to liquidate its business.
7. Limiting Liability by Notice of Creditors to File Claims or be Barred. There is a notice procedure specified in NY corporations law by which a company can publish notice in a newspapers and mail copies to its creditors requiring them to file claims by a deadline of not less than six months after the date of first publication. The company may submit claims that it disputes, and is unable to resolve directly with the creditor, to determination by the New York Supreme Court. Claims which are not timely filed, except claims that are the subject of litigation, and claims that are disallowed by the court, are forever barred as against the company, its assets, directors, officers and shareholders.
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A voluntary dissolution of a company (corporation or LLC) can be an effective way for a loss making business to cease operations without incurring the costs, litigation risk and delay of a company bankruptcy filing. If a company has sufficient assets to satisfy creditors’ claims in full, or accommodating creditors who will agree to compromise their claims for less than payment in full, then voluntary dissolution is a fast and inexpensive means of ceasing business operations. If shielding the company, its assets, directors, officers and shareholders from liability is desirable, the company can follow the notice to creditors and publication procedure, and, if necessary, involve the NY Supreme Court to resolve any disputed claims.
The attorneys at Starr & Starr, PLLC, have experience in pursuing voluntary corporate dissolutions for companies (corporations and LLCs) under New York, Delaware, and California law. Please feel free to contact us at 888-867-8165 or by email at firstname.lastname@example.org for additional information.