There might become a time that your entity you set up with the Secretary of State has no more use to you. After making the decision that you don’t need it anymore most people just walk away from the entity and do nothing to it.
When you do nothing. The entity will go into a “default” status with the Secretary of State.
What does “default” mean? Each state is different, and most states also use different terminology. That can be scary. The first time I saw an entity say “dead” I was so confused. What did that mean? Why is it dead and could it be revived? The first thing to do is to make sure that you understand what the different terms are for your state. Once you do it’s easier to define what the state means and what can still be done with your entity.
Some States after a period of time, and the entity has been in a “default” status it can no longer be revived or reinstated. Once this happens there is no other option than to begin again if you still need the entity.
Another factor is, did the status of the entity change because of something you did or didn’t do?
This means that the Secretary of State is monitoring your entity and making sure that it remains in compliance to their state requirements. When it does not meet these requirements the most common term that is used to let the owner of the entity know is “Administratively Dissolved”. This is when the state puts the entity in a “default” status, not the client. Owners can view the entity online with the SOS (Secretary of State) and see that it is already “dissolved”, and they think that is all that is needed. Wrong.
First, check with your state and see exactly what “dissolved” means. The Secretary of States have agents that will assist you or you can call me, and I will assist you with finding out. Knowing is half the battle, right? Definitely!
Next, be prepared for the answer. Most states require the entity to be in “good standing” before you can properly dissolve it. This means that you will have to pay for it to get there. This can be expensive, but worth it if you want to dissolve your entity correctly. When you dissolve an entity correctly, there is that reassurance that no future issues will occur with the State or with State taxes. This means that the department of tax and the Secretary of State department have signed off that nothing is no longer due, and it can be dissolved.
Finally, what are the steps to dissolve my entity?
- Learn the status of the entity
- If the entity is in good standing, then filing the proper document(s) is easy.
- Once the documents are filed with the state you will receive a stamped form showing the Secretary of States approval.
- Keep this form in your corporate binder or your documents for the entity.
- You will then reach out to the Internal Revenue Service and ask for the online or process to send a letter closing the EIN Number. This is the step that most clients don’t think about.
- Once the entity is properly dissolved with the State and the IRS has closed out the EIN number you are now properly dissolved!
What If the entity is NOT in good standing, then what?
1) Decide if you want to take the time and money to activate it. Note, you will not be able to close your EIN if you are not properly dissolved with the State. You will need to weigh that in your decision.
2) Call the Secretary of State and get the amount owed on the entity and the process to reinstate it.
3) Don’t forget that you will need to have a registered agent for your entity. Most states require a registered agent for each entity. The registered agent must be located in the state your entity is registered. Hopefully, it can be you so that you won’t need to pay a full year’s service for a short time before the dissolution.
4) Remember the entity will not be dissolved if the state taxes haven’t been paid. Most dissolution filings with communicate with the state’s tax department and get the green light. When an entity is registered with the State it will also need to be registered with the States tax department. This is usually not a service that companies provide, the client creates that account themselves. I have had past clients that never registered their entity with the States tax department thinking that those who set up the entity did it for them and it turned out badly for them. There are usually penalties and fines. Once those are paid the tax department will approve their part of the dissolution.
5) Once your entity has cleared the Secretary of State and the State tax department you will then be able to close your EIN account with the IRS.
This is how you properly dissolve an entity.