An Overview: Winding Up Texas Corporate Activities
Corporate officers can choose to formally “wind-up” all business activities when many different factors change. For example, when smaller corporations are involved, key parties may simply want to retire or pursue new goals. In other situations, market trends may change so significantly that corporate officers may want to choose more advantageous business structures. Regardless of why any specific Texas corporation decides to go through the termination process, basic legal steps must be followed carefully.
Since this process can involve different statutes, including detailed sections of the state’s Business Organizations Code, it’s always best to confer with your Houston corporate law attorneys. They’ll readily understand the termination process that the Texas Secretary of State’s Office expects each corporation to complete. (Of course, in some instances, a corporation may be involuntarily terminated for various reasons – including the failure to file annual reports).
Here’s a look at some of the steps you must be ready to take based on our state’s governing laws and the specific realities involved with your business. Although other states may speak of “dissolving” corporations, Texas usually refers to “winding up” corporate matters.
The Texas Business Organization Code’s Two Main Ways to “Wind Up” Activities
- The board of directors adopts a resolution. It should state that they are recommending that the corporation “wind up” its activities — after submitting this proposal to all the shareholders. At a properly convened meeting, the shareholders must then vote on this proposal. In general, a two-thirds majority of the shareholders must approve this decision before the winding-up process can begin;
- All shareholders must sign a “consent” document. Once this has been done, the “consent” document must be entered into the corporate records. This approach is most common when smaller corporations are involved. Great care must be taken to cover all key termination matters within this consent agreement.
Once this early internal activity has been concluded, numerous other steps must be taken to properly conclude all corporate business matters.
Common Additional Steps Required to “Wind Up” Your Corporation
- All known parties with claims against the corporation must be served with notice of the current intent to terminate the corporation’s existence;
- Every necessary corporate lawsuit must be properly initiated and concluded;
- All corporate property must be properly collected and sold – depending on whether its value is owed in some manner to the shareholders;
- All corporate liabilities must be properly discharged – including the payment of any taxes owed to the IRS or the state of Texas.
General Tax Issues and Obtaining Required Certificates
While your Texas corporate attorney may be prepared to handle all your corporation’s tax payment issues involved with the “winding up” process, you may also want to confer with a tax attorney.
Keep in mind that your corporation must obtain a “certificate of account status” from the Texas Comptroller of Public Accounts — and a final federal tax return must be properly filed once all corporate finances have been finalized.
Filing a Certificate of Termination
After you’ve obtained a certificate of account status from the Texas Comptroller of Public Accounts, you’ll need to file Form 651 (a certificate of termination) with the Secretary of State’s Office. Once this step has been taken and approved, your corporation’s existence has legally ended.
Added Issues That May Need to Be Addressed
Keep in mind that the information provided above was simply intended as an overview of the Texas corporate “winding up” process. Your attorney will be able to provide you further advice about whether additional paperwork is required. Fox example, certain Texas laws governing corporate mergers may or may not apply to your situation.
Please feel free to contact our law office with any questions you may have about possibly terminating your Texas corporation – or any other business entity. We can provide you with the advice you’ll need to properly handle all required stages of this process.