Are you ready to stop doing business with your Texas corporation, but you’re not sure how the official dissolution process works?
The state of Texas requires corporations to file documentation of a dissolution, which can differ depending on a couple of key factors. What are these factors, and what does the dissolution process include? In this guide to dissolving a Texas corporation, we’ll break down all the relevant details.
If at any point you need help, you can use a service like Incfile or Northwest Registered Agent to handle the process for you.
Rocket Tip: Most company formation services are also able to dissolve your entity for a small fee. They’ll take care of the paperwork so you can move on. Two popular options are LegalZoom and Incfile.
What Does It Mean to Dissolve a Corporation?
In any state, there is a series of steps that needs to be followed in order to properly dissolve a corporation. While this process does vary some from state to state, for the most part it’s necessary to follow this basic plan (unless your corporation has not yet issued shares or started doing business, which we’ll get to shortly):
- Hold a board of directors meeting and formally move to dissolve your corporation. The resolution to dissolve must be agreed upon by a majority of the corporation’s directors. Depending on your corporation’s structure, you may then need to take the vote to your shareholders. Either way, it’s important to take detailed records of this process for your corporate record.
- Fill out and file the Certificate of Termination with the Texas Secretary of State.
- Fulfill all tax obligations with the state of Texas, as well as with the IRS.
- Cancel any relevant licenses and permits, along with closing your business bank account.
- Notify customers, vendors, and creditors of your dissolution.
Most of these steps are fairly self-explanatory, but where many corporation owners run into some confusion is when it comes to the Certificate of Termination. With that in mind, let’s dive into the details of this step.
How to Dissolve a Texas Corporation by the Board of Directors
Most corporations must be dissolved by the board of directors, and we discussed the necessity of holding a meeting to reach this resolution in the previous section.
In the state of Texas, you’ll need to fill out and file a document known as the Certificate of Termination of a Domestic Entity. This form requires the following information:
- Name of your corporation
- Your business entity type
- Date your entity was formed
- File number issued to your entity by the Secretary of State
- Names and addresses of each governing person for the entity (i.e., your board of directors)
- Nature of the event causing your business to dissolve
- Effective date for the termination
- Certification that you have attached a tax clearance certificate from the Texas Comptroller (you can get one here)
- Name and signature of an individual authorized to file the form on behalf of the entity
Once you’ve finished filling out your Certificate of Termination, you’ll need to write a check for $40 to “Texas Secretary of State.” Then, mail two signed copies of your form to the following address:
Secretary of State
P.O. Box 13697
Austin, Texas 78711-3697
Under typical circumstances, you can expect the state of Texas to process your dissolution filing within three to five business days of receiving it. However, it’s important to note that you also need to acquire a certificate of tax clearance. It can take the Texas Comptroller as much as four to six weeks to get your certificate to you. So, it’s not uncommon for the entire dissolution process to take up to seven weeks.
How to Dissolve a Texas Corporation by the Incorporators
Sometimes, entrepreneurs need to dissolve their corporation before shares are issued or any business is transacted. In this situation, the incorporator will need to take responsibility for dissolving the corporation.
In Texas, corporations without stock use the same process to dissolve. The form is exactly the same, too: the Certificate of Termination. The only difference is that you won’t have as many issues to wind up as a corporation with shares.
Just like a corporation with shares, you will need to pay a filing fee of $40. You can make your check payable to “Texas Secretary of State.”
Secretary of State
P.O. Box 13697
Austin, Texas 78711-3697
Finally, the Certificate of Termination has the same 3-5 day turnaround plus however long it takes to receive your certificate of tax clearance.
What Else Do I Need to Know About Dissolving a Corporation in Texas?
The moment the state of Texas dissolves your corporation, your business name becomes available for anyone who wants to use it. This is one of the reasons that you should never dissolve a corporation until you’re absolutely certain that you will no longer conduct business in this state.
There’s also the issue of administrative dissolutions to discuss. This is when the state dissolves your corporation without you requesting that they do so. This can happen if you fail to file and pay your annual franchise tax report. If 60 days pass and you have not corrected your delinquent reports, the state can dissolve your corporation. The same applies if you do not maintain a registered agent.
Reinstating a corporation can be a real hassle due to the extensive fees you may need to pay. For one thing, the state of Texas charges hefty interest rates on late reports, which grow in size the longer you wait to pay.
If you pay these fees and file the missing reports, you can complete the next step for reinstatement: file an Application for Reinstatement. All told, the administrative dissolution and reinstatement process can be a burden for a corporation, and it’s best to avoid this situation altogether.
Conclusion
The process to dissolve a Texas corporation that has not distributed shares or transacted business is pretty simple, but if you have completed either of those steps, the process is more time-consuming.
Either way, it’s crucial that you complete each step discussed in this guide accurately, because you certainly don’t want to run into any issues with the dissolution process.
We hope this guide helped you answer any questions you might have had about dissolving a Texas corporation!