Like any ‘break-up’ between couples, there are procedures which must be followed when closing a corporation in Massachusetts. To continue with this analogy, most people in a relationship with joint bank accounts, property owned jointly, or even with shared debt do not just walk away from the relationship without a well thought out exit plan. Running a corporation is the same. Corporations in Massachusetts must follow certain procedures when closing or ending the business.

Dissolution of a Massachusetts Corporation

The first step in closing or ending a Massachusetts corporation is to dissolve the corporation. How to dissolve a Massachusetts corporation is covered by my previous article on the subject. Dissolution follows certain prescribed procedures – these procedures being dictated by either bylaws, a shareholder’s agreement or the Massachusetts Business Corporation Act (the “BCA”). The difficult thing about dissolving a corporation is knowing which procedures to use, and being sure to use them correctly. See my article on dissolving a Massachusetts corporation for more information on the subject of dissolution.

Filing Article of Dissolution

Step 2 in the process of dissolving a Massachusetts corporation is to file the articles of dissolution. As an aside, I might add that prior to beginning any of these steps it is advisable to hire a Massachusetts business attorney to assist your corporation through the process of ending or closing the corporation.

Winding Up the Corporation

The third step, which is the focus of this article, is how to ‘wind up’ the corporation – a process which is complex and which should have the guidance of a Massachusetts business attorney.

What is ‘winding up’ a corporation?

Once the company has been dissolved, or gone through the process of dissolution, the corporation must dispose of certain matters. This final stage in the process of ending a Massachusetts corporation is known as winding up. What happens during during the winding up period is prescribed, under the BCA, as follows:

• Create an Asset List
• Dispose of any corporation property owned by the corporation that are not subject to receipt by the shareholders as in kind distributions
• Pay off or give notice to creditors/claimants all “existing and reasonably foreseeable debts, liabilities and obligations, whether or not liquidated, matured, asserted, or contingent”
• Distribute the remainder of corporate property to shareholders

NOTE: The tasks listed in these bullet points are extremely important to perform correctly. Correctly, in this context, means knowing what the statutory or legal definitions of “property” and other words listed above are. Corporations can get into how water by assuming the meaning of words or applying its own meaning to a given word without referring first to legal authority to discover the meaning of a particular word. I recommend getting legal advice as to exactly what these terms mean and what order to perform the above-mentioned tasks in to minimize liability effectively.

Also, and perhaps most importantly, note that a Massachusetts corporation has the duty to pay off, or find some other means of discharging its debt, liabilities and obligations to taxing authorities and creditors or others BEFORE distributing any remaining assets to shareholders. Contact our offices to assist you through this process.

Notice

While it is not always necessary to provide creditors or those with legal claims against your Massachusetts corporation with notice of the dissolution of the business, it is often a very wise move. Particularly when a corporation wishes to distribute any remainder assets to shareholders in the last stage, providing notice of the dissolution of the corporation to claimants or creditors may help limit liability as it becomes evidence of the corporation’s intent to make the other side aware of its legal rights.

Not only are Massachusetts corporations that wish to give notice about their dissolution allowed to do so in letter form to their creditors and claimants under the BCA, but, when unknown claims may exist, a corporation may publish notice in the newspaper.

The content of a notice of dissolution is complex, and guided by Massachusetts law on the subject. For example, while a claimant generally must respond within three years to notice by publication in the newspaper or by direct notice, there are very specific rules which dictate the notice letter itself. What must be in the notice of dissolution, which assets of the corporation must be held to cover even a potential claim, and other important rules govern the content of a notice of dissolution. Contact a business attorney with experience in these areas for more information.

The Massachusetts Department of Revenue

The Department of Revenue (DOR) requires a 30 day notification of dissolution upon authorization of the dissolution of the Massachusetts corporation. Again, this agency has specific requirement as to what constitutes effective notification of dissolution in this context.

Do Not Go It Alone – Hire an Attorney

The internet is a marvelous source of information, and experts on every topic exist just about everywhere. However, when considering closing a corporation in Massachusetts, it is not advisable to take a ‘do it yourself’ approach to this process unless you understanding it intimately. Contact a business attorney to guide the corporation through this detailed process.

DISCLAIMER: The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.