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Composed: The startup operating guide
Epilogue: Dissolving a Company
Things to know before you start
Dissolution Checklist
Phase
Task
Type
Notes
Phase 1: Prep
6
Notify employees
People
Inform them of a) Plans to dissolve, b) Severance if any, c) Liquidating distributions if any to common stockholders, d) Last day of insurance coverage, e) Job search support you plan to offer.
Notify investors
Governance
Company’s CEO should notify stockholders & noteholders of the context, and let them know if there will be dissolution proceeds. Check cap table and wherever the company maintains its investor list.
Calculate first draft of liquidating distributions
Finance
Make sure to set aside reserves for
@Pay all other outstanding vendor obligations
@Pay all other outstanding contractor obligations
@Pay final accounting + bookkeeping bill (or reserve $ for this bill)
@Pay final legal bill
@Run final payroll to employees
@Make severance payment to employees (if applicable)
@Prior year DE Franchise tax
@Pay final year DE franchise tax
@Surrender registrations in states where registered
@File final tax return (federal + state)
Notify lawyer
Vendor
While you can complete many of these steps yourself, it’s highly advisable to at least loop in your lawyers to work with you during this process to make sure you aren’t missing critical steps for your specific needs, and that you’re following good hygiene and best practices.
In particular, it would make sense to ask them about the following to kick off the process (most should be boilerplate documents but they can tailor it to your needs and context as needed):
@Board Resolution to dissolve the company
@Stockholder Consent to dissolve the company
@Sign SAFE-holder / Noteholder dissolutions
If you need to save on legal fees, you can typically handle the regulatory steps in and . If you need additional assistance, feel free to ; handling state compliance will be far cheaper with us than with having your lawyers do it, since it’s compliance work not legal.
@File dissolution with DE
@Surrender registrations in states where registered
Notify payroll provider
Vendor
Let them know when the last payroll will be or was, as they will need to file final returns with the IRS and state.
Determine if assets are saleable
Finance
The first step in this process is the liquidation of any illiquid (non-cash) assets. If the company has any intellectual property (eg domain names) that can be sold or other personal property (like desks, chairs, laptops) that were purchased with corporate funds, those should be offloaded (sometimes to the founders, with investor notification / consent).
Phase 2: Execution
15
Board Resolution to dissolve the company
Governance
Counsel should draft
Stockholder Consent to dissolve the company
Governance
Counsel should draft; typically requires >50% of stockholders to sign off on the dissolution.
Prior year DE Franchise tax
Regulatory
If not already paid
File dissolution with DE
Regulatory
The formal dissolution of the company involves having the board and stockholders sign the consents and then filing the dissolution certificate with Delaware once those consents are obtained. The certificate templates are available for download here - https://corp.delaware.gov/disso09/ and can be uploaded online through their eCorp Business Services here - https://icis.corp.delaware.gov/ecorp2/. If the company has no assets and paid only the minimum franchise tax since incorporation, you may be eligible to use the Section 275 Short Form.
Pay final year DE franchise tax
Regulatory
Paid alongside dissolution documentation
Surrender registrations in states where registered
Regulatory
This includes
Example for CA SoS: If you are registered as a foreign entity in CA, then you will also need to file a certificate of surrender with CA. You can find the form and the instructions at
NOTE: AbstractOps, where this guide was developed, offers state compliance as a service. While we usually offer a “full-stack” solution to register + maintain + close accounts, we can offer a significantly discounted rate from our typical fees for just winding down state accounts. Please contact us at .
Run final payroll to employees
People
Including severance if applicable
Make severance payment to employees (if applicable)
People
If needed, sign separation agreements as well
Close active vendor accounts
Vendor
Check QBO, bank account, and other accounts payable tools
Pay all other outstanding vendor obligations
Vendor
Check QBO, bank account, and other accounts payable tools
Pay all other outstanding contractor obligations
Vendor
Check Gusto, Rippling, Deel, etc.
Collect refunds on pre-payments (if any)
Vendor
Might include annual payments to insurance, any canceled vendor contracts, etc.
File Form 966 with IRS
Regulatory
1) Form 966, Notice of Corporate Dissolution or Liquidation, must be filed within 30 days of the dissolution. It's pretty straightforward to complete at http://www.irs.gov/pub/irs-pdf/f966.pdf. There also needs to be a secretary's certificate to certify the docs that are to be sent with the form. Counsel can provide, or feel free to ask AbstractOps.
Pay out obligations to creditors and vendors
Finance
Close all corporate cards
Finance
In case any expenses were on personal cards (and getting reimbursed), make sure those subscriptions and records are updated, too.
Phase 2: Wrap-up
8
Pay final accounting + bookkeeping bill (or reserve $ for this bill)
Vendor
Make sure to notify your accountant that you need them to file current year taxes as a final tax return; they will not be able to do so until early next year, but you’ll be able to have them invoice you and pay them now.
Pay final legal bill
Vendor
Usually $2-5K to a lawyer to draft board consents, stockholder consents, any necessary SAFE / stock repurchase, separation agreements, etc. This may be materially more if you have a major silicon valley law firm.
Finalize calculation of liquidating distributions based on bank balance
Finance
Use template in
@Calculate first draft of liquidating distributions
Sign SAFE-holder / Noteholder dissolutions
Governance
While handling stockholder distributions is contemplated in corporate governance documents, it’s often good form to have SAFE-holders, noteholders, and other creditors signoff on their expected proceeds and dissolve their outstanding instrument (in exchange for whatever proceeds they are expected to receive). Please consult counsel for the appropriate procedure and documentation.
Pay out liquidating distributions to investors (according to liquidation preference)
Governance
Please work in tandem with counsel for this.
Pay out liquidating distributions to remaining stockholders (according to liquidation preference)
Governance
Please work in tandem with counsel for this.
File final tax return (federal + state)
Regulatory
Per above in , this can only happen after Feb of the succeeding year, so you’ll have to keep this as an open thread for a while after you’ve actually dissolved.
@Pay final accounting + bookkeeping bill (or reserve $ for this bill)
Close bank account(s)
Vendor
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