Are you considering closing down your corporation in Illinois? This article will guide you through the critical steps to dissolve an Illinois corporation correctly, whether it's an S-Corporation or a C-Corporation, to protect yourself from personal liability. Learn how to obtain shareholder consent, file the necessary articles of dissolution with the Illinois Secretary of State, and properly wind up your corporation's affairs. We'll also explore the differences between voluntary and involuntary dissolution, emphasizing why following proper procedures isn't just recommended—it's essential for your financial and legal protection.
Key Takeaways
- Illinois corporation dissolution mandates legal steps, shareholder approval, and filing articles of dissolution to avoid personal liability.
- Dissolution can be voluntary or involuntary; the latter may result from non-compliance with fees or filings, risking personal liability for directors.
- Finalizing a dissolved corporation involves debt settlement, creditor notification, asset liquidation, shareholder payouts, and final tax filings.
The Importance of Properly Dissolving an Illinois Corporation
Deciding to close down your corporation in Illinois is merely the beginning. Undertaking the dissolution process is essential if you want to protect yourself from being personally liable for any future debts or legal challenges that might arise once your business ceases operations. The goal of carrying out a proper dissolution in Illinois is to formally conclude the corporate entity’s existence under state law and clear it from ongoing obligations like annual fees, report filings, and taxes.
Simply shutting up shop isn’t enough to dissolve an Illinois LLC. Careful adherence to set protocols must be observed. These include securing agreement from shareholders, submitting articles of dissolution with the appropriate authorities, and managing the final affairs of your business operation accordingly. While hiring legal support during this transition may involve some costs, they are trivial compared to possible financial responsibilities incurred due to neglecting these mandated steps.
Failure to adhere meticulously can result in continued accumulation of unpaid taxes and fees on behalf of a corporation still registered as active—something which it remains responsible for—and could even lead to compulsory closure enforced by the office of Secretary State in Illinois. Circumventing individual accountability linked with corporate behavior becomes all more imperative by ensuring that one dissolves their corporation following strict regulatory guidelines laid out within state jurisdiction.
Voluntary Dissolution of Illinois Corporations vs. Involuntary Dissolution
Illinois corporations may be dissolved involuntarily by a court order as a result of a lawsuit by creditors, or by the Illinois Secretary of State for failure to file an annual report or pay annual fees. Alternatively, corporations may be dissolved voluntarily by shareholder consent.
If a corporation is voluntarily dissolved and its affairs are wound up, the corporation’s directors and officers’ will generally not be personally liable after the dissolution for corporate actions. On the other hand, directors and officers may be personally liable for the actions of an involuntarily dissolved corporation.
Why Should I Voluntarily Dissolve My Corporation Rather Than Simply Stop Paying Secretary of State Fees?
As discussed above, the Illinois Secretary of State will involuntarily dissolve your corporation if the corporation fails to file its annual report and pay its annual fee to the Secretary of State. However, because personal liability for corporate actions may follow the directors and officers of involuntarily dissolved corporations and corporations that are not properly wound up, it is preferable to voluntarily dissolve your corporation rather than simply allowing it to be involuntarily dissolved. The cost of retaining an attorney to assist you in voluntarily dissolving and winding up your cooperation will be minimal compared to the liability you may incur by cutting corners at this stage.
Even if your corporation has been involuntarily dissolved by the Secretary of State, you can still cut off liability through the procedures for voluntary dissolution. In this case, you should file for reinstatement with the Secretary of State and pay the fees for any delinquent annual reports. Once your corporation is reinstated, you can follow the proper procedures for voluntary dissolution.
Obtaining Shareholder Consent to Dissolve an Illinois Corporation
The first step in dissolving an Illinois corporation is to obtain the proper shareholder consent or votes. It is important to follow the proper internal corporate procedures when dissolving a corporation in order to avoid potential liability to the shareholders for failure to do so.
There are two primary ways of obtaining shareholder authorization to dissolve an Illinois corporation. The first is to obtain unanimous written consent of the shareholders. If the shareholders unanimously consent to the dissolution in writing, no meeting of the shareholders or shareholder vote is necessary to effectuate the dissolution.
Alternatively, an Illinois corporation may be dissolved by a vote of the shareholders at a shareholder meeting. All of the shareholders must receive notice of the meeting at least 10 days prior to the meeting. The shareholders must also receive a proposal to dissolve the corporation from the directors prior to the vote.
The percentage vote needed the dissolve the corporation will be determined by the corporation’s bylaws. If the bylaws are silent on the subject, the Illinois Business Corporation Act requires a two-thirds vote of shareholders in order to dissolve a corporation.
How to File Articles of Dissolution with the Illinois Secretary of State
Once the shareholders of your corporation have consented to dissolution, the next step is to alert the Secretary of State of the corporate dissolution. This is done by filing a form with the Illinois Secretary of State called “Articles of Dissolution” (Form BCA 12.20) and paying a nominal fee.
The form will contain some basic information regarding your corporation as well as the method by which you obtained shareholder authorization for the dissolution. It is important to file Articles of Dissolution in order to terminate your corporation’s requirement of paying annual fees to the Secretary of State.
How to Wind Up an Illinois Corporation
The final step to dissolving an Illinois Corporation is a process called “winding up.” In order to wind up the affairs of the corporation you should follow the following steps:
- Notice to creditors: Within 60 days of dissolution, you should mail notice to any creditors or potential creditors. The notice must inform the creditors of the following:
- The date that the corporation was dissolved;
- The mailing address to which the creditor should send its claims if the creditor is owed money by the corporation;
- The deadline for the creditor to file claims (this must be at least 120 days after the date of dissolution); and
- That if the corporation does not receive the claim by the deadline, the claim will be barred.
- Collect and liquidate the corporation’s assets;
- Prepare a distribution report: You should prepare a report showing an inventory of the assets you collected and how you intend to distribute them. After the creditor notice period has elapsed, you should mail the distribution report to all creditors who have filed claims and all shareholders of the corporation.
- Pay any taxes that the corporation owes;
- Distribute assets to creditors: Creditors must be paid from corporate assets before shareholders. Be aware that there are different classes of creditors that must be paid in order of priority in order to avoid personal liability;
- Distribute any remaining assets to the shareholders.
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