How Are Debts Paid When a Business Closes?
Corporate dissolution tips in OregonBy S.M. Oliva | Reviewed by Canaan Suitt, J.D. | Last updated on December 11, 2023 Featuring practical insights from contributing attorney Kimball H. Ferris
Use these links to jump to different sections:
- 1. File Your Final Paperwork With the IRS
- 2. File Articles of Dissolution
- 3. Notify All Known (and Unknown) Business Creditors
- 4. Distribute Any Remaining Assets
- Find an Experienced Business Law Attorney
Although an Oregon corporation can theoretically continue indefinitely, in practice, many small businesses choose to wind up their affairs at some point. Whether it is due to a voluntary decision by the shareholders or the consequence of unfavorable economic conditions, dissolving a corporation and going out of business is not as simple as hanging a “CLOSED” sign on the door. Shareholders and corporate officers alike need to be aware of and follow the proper dissolution procedures for corporations to ensure they are not held personally liable for any outstanding business debts.
“It’s not unlike the estate planning process,” says Kimball H. Ferris of Ferris Legal in Portland. “You’ve got to collect all the assets, identify all the liabilities, make proper provision for all of the creditors—including paying all taxes.”
Though Ferris notes that the process is relatively simple, here are some basic steps to consider before closing your Oregon business.
1. File Your Final Paperwork With the IRS
Even if you are no longer actively conducting business, your corporation still needs to report its final taxable activities to the IRS, as well as state and local authorities.
Make sure the corporation has made its final tax deposits, including employee withholding taxes, and you have issued any necessary W-2s or 1099s. You may also need to report the sale or exchange of any business assets as part of the closing process.
2. File Articles of Dissolution
Just as you filed articles of incorporation when starting a business, you must also file articles of dissolution to officially close it. Articles of dissolution are filed with the Oregon Secretary of State. The articles should contain the date the dissolution was authorized and the result of any shareholder vote on the action.
“In the old days,” says Ferris, “there was a formal plan of dissolution, and liquidation would be presented by the board to the shareholders. Then, that plan would be filed along with the articles of dissolution. It’s become a little less formal now, but it’s still a good idea to go through those steps because they create a very good discipline, which is really the main thing you’re looking for in this process.”
3. Notify All Known (and Unknown) Business Creditors
The decision to dissolve a corporation does not automatically invalidate its outstanding debts.
Remember, a dissolution is not a bankruptcy, so your corporation will still need to deal with its creditors, vendors, unpaid employees, and anyone else who is owed money or property. Under Oregon state law (ORS 65.641), a corporation must “notify its known claimants in writing of the dissolution at any time after its effective date.” The notice must give the claimant at least 120 days to file a claim.
The dissolved corporation must also file a public notice “in a newspaper of general circulation” in the county where it had its principal office. This notice targets any unknown claimants. As a general rule, unknown claimants may take legal action within five years of the date the notice was published to recover any money it is owed.
4. Distribute Any Remaining Assets
The corporation’s board of directors or shareholders should adopt a formal liquidation plan to manage the orderly payment of claims and distribution of company assets.
Keep in mind that the dissolution of business property does not automatically transfer title to any assets under Oregon law. Every asset of the corporation must be distributed to a creditor, claimant, or shareholder. If a person entitled to a distribution of corporate assets cannot be located within one year of dissolution, Oregon law mandates the asset in question be reduced to cash and deposited with the Department of State Lands, which will hold the funds until the person appears to claim them.
Find an Experienced Business Law Attorney
These are just a few of the legal issues that need to be addressed when dissolving an Oregon corporation. Contact a law firm for a qualified Oregon business attorney who can advise you on more specific steps applicable to your company’s debts and unique circumstances. And remember: “Carefully think through all the assets, liabilities, ramifications—that’s really the main thing,” says Ferris. “Take your time, be careful, and don’t be in a hurry.”
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