Liquidation And Dissolution Essay

834 words - 4 pages

Liquidation and Dissolution

Catricia K. Collins

Professor W. Powell

Advanced Federal Taxation

Accounting 317

August 22, 2012

Liquidation and Dissolution
"Complete liquidation" is a term not defined by the Code. The regulations under IRC section 332 suggest that the status of liquidation exists when the corporation ceases to be a going concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders. The Tax Court applies a three-pronged test to determine whether a ...view middle of the document...

First step is to hold a meeting of corporation's board of directors in which they need to propose a resolution for business closing ("Termination Proposal"). A vote must be taken and the minutes of the meeting must be recorded and retained in the corporate records. Then that proposed dissolution action must also be approved by majority shareholders. Second step is filing Articles of Dissolution with the secretary of state. The procedure varies from state to state - in some states this is done with a simple certificate while others require a more complex process. Lastly, once you get approval from the state to dissolve your corporation/LLC, then company assets need to be distributed to its shareholders/members.
The company must notify each director and shareholder, whether entitled to vote or not, of the proposed dissolution meeting. The notice must clearly state that the purpose of the meeting is to consider dissolving the entity. The corporation/LLC will be withdrawn and its existence ended on the date the Certificate of Dissolution is filed and approved by the State. The Business Corporation Law does not permit the effective date of dissolution to be other than the date of filing of the Certificate of Dissolution by the State. The Certificate of Dissolution must be signed by an officer, director, attorney-in-fact or a duly authorized person. The name and title of the signer must be typed or printed opposite the signature.(www.myusacorporation.com/entity-dissolution.html)
A fine line exists between definitions of a corporate liquidation and dissolution. But for tax purposes, the defining line can make a big difference. Witness the situation described in recent letter from the...

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