AFFIRMATIVE DISSOLUTION OF A NORTH CAROLINA CORPORATION
In most respects, it is as easy to close down a corporate entity as it is to open it. However, if the directors or organizers are not careful in properly dissolving a corporate entity they may find that they have bitten off more than they intended.
Functionally, the process involves downloading the appropriate form from the North Carolina Secretary of State’s website and completing that form honestly and accurately. If shares have been issued and a board has been created, then the corporate formalities will require that the Board make a recommendation and that shareholders be given the opportunity to vote. All shareholders are entitled to notification whether or not they are entitled to vote.
One of the key provisions too many people miss is the fact that to affirmatively dissolve a corporate entity, the assets and liabilities of the corporation need to be reconciled. After articles of dissolution are filed, the company may not continue carrying on business except that it may do what is necessary and “appropriate to wind up and liquidate its business and affairs.” (N.C. Gen. Stat. § 55-14-05(a)). This process includes collecting outstanding receivables, selling or otherwise disposing of assets, paying or making arrangements to deal with liabilities, and distributing any remaining assets to the shareholders.
Knowing what articles of dissolution do not accomplish is of equal or greater importance. Simply dissolving a corporation does not serve to transfer title of any of the corporate property. It does not freeze the ability to transfer shares, unless such a freeze is written into the authorization to dissolve. The process does not automatically expose officers, directors or shareholders to personal liability not already existing. And, the process does not prevent legal action by or against the corporate entity.
If a dissolved corporation provides notice of the dissolution to those with known claims against the corporation, in writing, at any time after the effective date of the dissolution, then claims can be barred. However, the contents of the notice are very specific: (1) must describe information that must be included in a claim; (2) provide a mailing address where a claim may be sent; (3) state the deadline, which may not be fewer than 120-days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and (4) state that the claim will be barred if not received by the deadline (N.C. Gen. Stat. § 55-14-06(b)).
Notice may also be accomplished by publication much like a death notice. This notice is not effective where the corporation knows or should know the address of a claimant, but can be utilized to ensure that notice is given to all potential claimants.
The reality is that very few corporate entities follow these guidelines and properly close their doors. Failure to do so can have consequences for the officers and directors in the form of personal liability for debt incurred after a dissolution. However, personal liability for debts existing at the time a corporation ceases operations will not occur unless the individuals have signed guaranties of the corporate debt or the corporation operated for any period of time after a revenue suspension. The fact remains that following the corporate formalities in affirmatively dissolving a corporate entity provides protections to the officers and directors, so it is worth the effort.