How to Dissolve a Corporation During a Lawsuit

Corporations have to be registered in the state in which they are incorporated. An unregistered corporation is not a distinct entity from its owners. If your business is sued, you might be tempted to dissolve the company to mitigate liability, but doing so is not always the best strategy. If you opt to dissolve your corporation, you'll need to follow the specific procedures required by your state's secretary of state.

If the lawsuit is your only reason for dissolving the corporation, dissolution might not be the best idea. You'll still be liable to your creditors, and you'll have to publish a notification of dissolution before you dissolve the business. In some cases, dissolution might even work against you. If the other party can prove that your corporation is little more than your alter-ego, you could end up being personally liable for your business's debts.

You might not be able to dissolve your corporation if you're involved in active litigation. A judge can issue an order prohibiting dissolution or requiring you to maintain your corporate bank accounts, for example. You'll also be required to publish a public notice of dissolution, and creditors can contest the dissolution if they believe that you're dissolving the corporation to evade your debts.

Before you take steps to dissolve your corporation, you'll need to ensure you have money in your business account to cover any debts that arise from a lawsuit. Every state establishes its own notification requirements, so check state laws. But generally, you'll be required to publish a notice of dissolution, as well as provide a list of any creditors or outstanding debts. If you have numerous debts or a large bank account balance, it's wise to consult an attorney before taking steps to dissolve your corporation.

After you've met your state's requirements for dissolution, you'll have to file articles of dissolution with your secretary of state. You'll have to include the date of incorporation, a list of officers and a copy of your published notice of dissolution. Your company is not dissolved until you receive final notice from the state in which your business is incorporated, and this can take anywhere from a few weeks to a few months.