What Happens to Assets of a Dissolved Company? (Answered)
The dissolution of the company entails legal procedures, formal closure, and the liquidation and distribution of remaining assets.
As a Mergers and Acquisitions specialist who worked with numerous clients in dissolving their companies, I understand the importance of knowing what will happen to the assets of a dissolved business entity.
After consulting our team of legal professionals, we'll share our insights on the process involved in the management of assets after a company has been dissolved.
- When a company is dissolved, its assets are liquidated to pay off debts and obligations. The remaining assets may be distributed to shareholders or sold to third parties.
- The dissolution process involves closing operations, notifying creditors, suppliers, and clients, and settling all outstanding taxes.
- 20.8% of private sector businesses in the U.S. fail within the first year according to LendingTree. After five years, 48.4% have faltered. After 10 years, 65.1% of businesses have failed.
- During the liquidation of assets, I advise business owners to employ a lawyer and a tax professional to guide you through the process and ensure its legality.
What Happens to the Assets of a Dissolved Company?
When a company is dissolved, its remaining assets are liquidated to generate funds, which are then used to pay off any outstanding debts and obligations.
If any assets remain after settling the company's liabilities, they are distributed to shareholders according to their ownership stakes.
Between March 2020 and March 2021, 965,995 establishments in the United States were closed, as reported by the U.S. Secretary of State. This statistic underscores the critical need for understanding the processes involved in company dissolution.
What Should I Do When I Dissolve My Company?
Similar to forming a business entity, dissolving a company involves a systematic approach to ensure a fair and legitimate resolution for all parties involved.
1. Close Down Operations
Once the owners approve the dissolution of the company, we had to file paperwork with the state to legally terminate the existence of the business entity.
Before the company closes down operations, it must wind up its business affairs by notifying customers or clients, suppliers, insurers, and creditors. It should further close the business bank account, and cancel licenses, permits, and registrations.
2. Liquidate The Dissolved Company Assets
Liquidation is the selling of company assets and converting it to cash. A business usually sells or disposes of company assets if it's going out of business – state law may require a public sale that anyone can attend.
If there are land-owned assets, leases, or other real properties, they may be sold by a public auction. The sale is usually held at the company's place of business or a specific location in the state.
Some states permit a dissolved business to use its remaining company assets for ongoing operations if they're not connected to the dissolved business.
This is called "substantially liquidating." A court-appointed receiver or trustee may be appointed by the court to oversee the collection of debts and termination of ongoing relationships during the dissolution process.
3. Settle Debts and Taxes
Once the assets of the company are liquidated, priority must be given to the settlement of all outstanding debts and other financial obligations. I advise clients to settle the claims of creditors, unpaid wages to employees, or contractors, rent or lease obligations.
We had to file the appropriate federal, state, and local tax forms and pay all outstanding taxes, then submit a letter to the IRS to formally close your business account.
Dissolved companies are not exempt from federal, state taxes, or self-employment taxes .
“In the official closure of a company, shareholders' responsibilities regarding outstanding debt can be clarified through scenarios such as bankruptcy proceedings, where shareholders may be required to contribute additional funds or assets to satisfy the company's debts.”
- Jon Morgan, CEO, Co-Founder and Editor-in-Chief of Venture Smarter
4. Shareholder Distribution
The remaining assets may then be distributed to the owners of the company. It may include money kept in bank accounts or from the direct sales proceeds or auctions of the company's non-cash assets.
The remaining assets after the settlement of taxes and liabilities are distributed among the company shareholders based on their ownership stake.
What Will Happen to Assets With A Market Value?
Assets with a market value will be sold for cash for shareholder distribution. In some cases, these proceeds may even cover your company's outstanding debts and costs associated with winding up operations and closing the books.
What Happens to Intellectual Property Assets when a Business is Dissolved?
When a business is dissolved, its intellectual property assets like patents, trademarks, and copyrights may be sold, transferred, or licensed to others, aiding in preserving their value and potentially benefiting stakeholders.
Alternatively, they may be abandoned or destroyed. I inform business owners that the dissolution process will determine the specific outcome, the company's obligations, and the governing intellectual property laws in the relevant jurisdiction.
Types of Company Dissolution
The two types of dissolution include voluntary and involuntary.
In a voluntary LLC dissolution, the owners may opt to end the business since the purpose has been accomplished or certain members decide to leave the company. The assets are then liquidated and used to settle debts and other obligations while the remaining are distributed to the members.
With an involuntary dissolution, the company may be administratively or judicially dissolved due to violation of state laws or lawsuits. Part of the business assets will be used to pay fines, back taxes, or settle lawsuits .
Can an Investment of a Dissolved Company Remain Invested?
An investment of a dissolved company cannot remain invested, since it is automatically liquidated and distributed.
Are My LLC’s Assets Vulnerable to or Protected from Seizure?
Your LLC’s assets are vulnerable to or not protected from seizure, only your personal properties have limited liability protection.
How Long Does It Take To Dissolve an LLC?
It takes 90 to 180 days to dissolve an LLC, depending on the dissolution procedure and the state’s processing time.