Corporate Practice Perspectives Webinar Series: Corporate Dissolutions and Withdrawals

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Annie: Hello, everyone, and welcome to today's webinar, "Corporate Practice Perspectives Series: Corporate Dissolutions and Withdrawals." My name is Annie Triboletti. I will be your moderator kicking things off today.

So joining us today are Helena Ledic and Jennifer Weeks. Jen is a corporate filing specialist, based in CSC's Wilmington, Delaware office, and Helena is an associate general counsel for CSC in Chicago. So with that, I would like to welcome Jen and Helena.

Helena: Hi, everybody. This is Helena here. Jen?

Jen: Hi. It's nice to be here. Thank you for having me.

Helena: Thanks so much, everybody, to the audience. All right. So let's talk today about our dissolutions and withdrawals and what we're going to cover. So we're going to get into the topic, of course, dissolution, and then we're going to cover withdrawals. But then we're going to go into some intricacies over here. We're going to talk about some of the states that have got more challenging tax clearance procedures. You'll hear about that from Jen, how that can come into play over here. We'll talk about a termination in lieu of withdrawal, where that might be able to help you out. We'll have a checklist, and then we'll go through a Q&A session at the end.

So with that, let's talk a little bit about CSC. CSC, what I like to say is that we are the business behind business. And what we do is we provide those business administrative and compliance solutions, and we do these for our customers worldwide. We work with more than 10,000 different law firms, more than 90% of the Fortune 500. We're located on 5 different continents, in more than 130 different jurisdictions. So we're always there to help you with your compliance needs. We can help you out with digital brand solutions, tax needs, corporate entities. All of that we're able to help you with.

And you can see is that we have this infographic over here. But you can see is that our formations are over here. Maybe that you need things like registered agent, you're doing some acquisitions, we can help you out with that compliance over there with that formation. But then the maintaining comes through. And that is like, Jen mentioned, the annual reports, maybe sometimes people are losing track of that, helping out with things like doing good standings, DBAs, like that. And then, as you're expanding, again more acquisitions, qualifications going into foreign states beyond your home domestic state, having to get evidence of things, business licenses and so on. And then a lot of what we're going to be talking about today is that dissolution process over here through the withdrawals, the actual dissolutions, all of that. So we'll be covering that today.

So with that, let's get started over here with the dissolutions, and then I think I'm going to be kicking this over to Jen.

Jen: Absolutely. Thank you, Helena. So there are two types of dissolution. You have voluntary dissolution and involuntary.

So we'll take a look first at voluntary. And basically what's involved in that is once your company is formed and you're registered with the secretary of state, you're required then to update that record with any changes. Say you had a name change in your domestic state, you want to keep on top of that. And then eventually, when you're ready to shut down the entity that you're voluntarily deciding, we're going to cease doing business, you handle your internal. Perhaps there's a vote. You take care of all of that. And then when you're ready, you go to file your documents with the secretary of state.

So sometimes this can be frustrating when perhaps you think it's going to be just a one-step process, but then as you move forward in it, you realize there's tax clearance, or there were annual compliance required that you weren't taking care of. And so sometimes you can face some roadblocks in your filing. But that's okay, and CSC is here to help. So we'll cover all of it as we go through the through the presentation.

But the opposite to that is that you have an involuntary dissolution. And this is when you are haven't realized that there were compliance needs that you were supposed to be keeping up with and you didn't maintain those. So the secretary of state has said you failed to file for one, two, three years. We're updating your status from active to perhaps cease good standing to eventually you're revoked. So you may continue to be doing business in that state or multiple states, thinking that you're all taken care of, and you're on the record there. But really your status has been updated, and you're not in good standing.

So that's something that can come as a surprise to people when they come to CSC, and they say, "We have a big project here. We need your help." And then it's 20 states, and of those 20 states, 10 you are already revoked by the state. So then they say, "Well, what do we do?" And then that's where CSC can jump in and help.

Helena, was there anything you wanted to add on that?

Helena: No, I think you covered this like terrifically. Let's move on.

Jen: Perfect.

Helena: Yeah, there we go. So I think you were going to get us started off with the articles of dissolution.

Jen: I will. So the articles of dissolution actually refers to the form that is required to be filed. Now each state is a little different. They call it a little something different, but basically it's the same. It's a form that CSC can send to you. You'll have to complete it. And then when you have it signed and it's filled out to the best of your knowledge, you'll send it back to us, and we'll get it over to the state for review.

Now, again, it's always up to the discretion of the state. If they see that there are some edits needed, we, CSC can take over that for you. We'll be your liaison between the state and CSC, and we'll work with you through the whole process to get it done.

Now one of the most common areas where we see extra help is needed is with tax clearance. So Helena, did you have anything you wanted to add on tax clearance?

Helena: Yeah, and so I think what's really important for the audience to know is this can be really complex over here. And the tax clearance is almost never done with the secretary of state. It's typically done with something like the Department of Revenue or the Department of Taxation. And so you have that step now that you're leaving your secretary of state pathway.

But then the added complexities come in is that CSC is not able to just go and get a tax clearance on its own. That tax clearance requirement request has to come from an authorized individual from that entity. So it could be a member, it could be a manager, whatever it should happen to be. And they're the ones who actually have to do that authorization to ask for it. So you have that extra layer that goes in there.

And then a lot of states don't require them for LLCs, but once in a while they do. So that's really important to know. And Jen, you had a really, really good example. When we were doing this prep work, you were telling me about something that happened with someone with Alabama. Why don't you give the audience that example of how that worked its way through the system?

Jen: I did, yes. So I had a client come to CSC, and they said that they were shutting down their business. And it was multiple states, and they said it was LLC. So I'm thinking, okay, it's mostly simple. Most of the states don't require tax clearance for LLCs. This should be a breeze.

But then, of course, we get to the state of Alabama, and we submit their withdrawal paperwork. I have it. We submit to the Department of Revenue for the tax clearance. There were technically two Alabama entities. One was smooth sailing, no problem. We got the certificate of compliance, and that one was handled quickly, painlessly.

But one of the entities, come to find out that they hadn't been filing all of their returns with the Department of Revenue. So that compliance certificate was not able to be issued. And then, unfortunately, I was unable to follow up on it with the Department of Revenue because it's such private information that I was able to give them I think a direct phone number to the Department of Revenue, an email address, something so that they could follow up on their own. And I had to say to them, "Someone from the entity that's authorized needs to clear this. And then once you have this cleared, you can come back to me, and I can resubmit for the compliance."

Now, luckily, they were like a tax company, so they were familiar with tax processes and returns and things. So they were able to clear that relatively quickly, and then we got it taken care of no problem.

But sometimes, it doesn't always go the happy path. But that's where I think we're at our best.

Helena: I love that, the happy path. Okay. All right. So Jen, take us now through like Delaware dissolutions because so much of our audience does Delaware work. Take us through this.

Jen: Absolutely. I'll just add in that Delaware is my absolute favorite. I'm a little biased because I'm in Delaware, but still, I love Delaware dissolutions, especially with the LLC and the LP.

It's pretty simple to get it taken care of. The form is very simple. The only issue then becomes with when you are dissolving, at the time of dissolution, all of the taxes are due to Delaware. For LLCs and LPs, it's just payment. As long as the entity has been keeping up with those payments, there shouldn't be any issues. It's always due June 1st.

But I will say that it's very common for someone to say, "Hey, I want to dissolve this LLC." They send me the form. I go and check on the Delaware's website, and the entity is in cease good standing. What does that mean? That means that they missed one of their payments recently. No problem. We can just make that payment for you and continue on with the dissolution once we have your okay. That's pretty simple.

A lot of times though, sometimes they'll have missed two years in a row, and then once you miss two years back-to-back consecutively, the State will update it from cease good standing to void. So then once your entity is updated into void status, it becomes a little bit more difficult because there's an added step. You would first need to revive the entity. And then once the entity is revived, it's a separate filing, so it carries additional fees, you pay the back taxes that were missed, and then we can proceed with the withdrawal. So instead of a one-step, it becomes a two-step.

And then for corporations, this is very common, we see corporations all day, there is an actual filing involved with a Delaware corporation. They file an annual report annually. It's due March 1st. So there is information that's needed for that. It's not as simple as please just advance my payment. There's information that we need to get upfront that we can provide with the form.

So some of the information we would require from you is a principal place of business, a phone number for the entity. A new requirement that Delaware has added recently, I believe it was just this month, is purpose of the business. So we're always on top of it and are always looking to see what are the changes that are coming so we can provide that information to you and then make sure that we have everything we need to submit at once. Whether it's just the certificate of dissolution form signed, whether it's one year of an annual report, whether it's two years of an annual report, whether it involves a reinstatement, we like to give you as much information as we can upfront so that it's a seamless process.

So another very common state that we have that we do dissolutions in is New York. Now where Delaware it's just an annual report that's required, for New York, it gets to be a little bit more complex because, as Helena mentioned, with tax clearance, it definitely adds an extra step for New York. So you would file the certificate of dissolution, and then you obtain the tax clearance.

And you might say, "Oh, that sounds so simple." It's not, especially when it comes to New York, because the entity must be in good standing and up to date on all of its returns. And CSC really doesn't have a way of seeing that because, as Helena said, when it's with the Department of Finance, we don't have insight into their systems or what the entity may have filed or not filed. So you would want to be keeping excellent record of that. And then, of course, we can apply for it. But if it comes back that there's an issue, we can work through that with you.

But I would say New York is definitely one of the more challenging states for corporations. For LLCs and LPs, it's a bit easier. There's no tax clearance required. So once you have decided that the business is ceasing and you contact CSC, we can help you help you work through that. And then there shouldn't be any roadblocks with that.

All right.

Helena: So that's for . . .

Jen: Sorry. Go ahead.

Helena: I was going to say we covered the dissolutions for the big states, the big home domestic states. Well, let's now segue into what is the withdrawal? How is that different? And then we're going to be seeing a few more of the states where we have got issues with. So with that, Jen, take it away again.

Jen: Absolutely. So what is a withdrawal? A withdrawal is the legal process by which a corporation relinquishes its authority to do business in a foreign state, since it has already ceased business in the domestic state. So you've already filed dissolution in Delaware or New York, wherever it was first formed. Now you have to then cancel the business in the other states where it's registered. So maybe at one point you were registered across all 50 states. So you take care of your domestic state first, and then now you want to take care of the withdrawal portion.

So what you would want to file is the paperwork for it. Where before we were looking at articles of dissolution, now for a withdrawal, you're looking at the application for withdrawal. So again, it differs from state to state. But most commonly that's what you'll see if you're doing your research or CSC is sending you forms. It will be an application for withdrawal.

So then I do just want to note that, as with the dissolution, with the withdrawal, there could also be an issue with tax clearance, depending on the entity type and the state.

Okay. So we're just going to drill down into one specific state, similar to how we did Delaware and New York. For this one, it's Arizona. So in Arizona, for foreign corporations, you file the application for withdrawal, but then you also obtain the tax clearance. Now with Arizona, it could take upwards of 30 days or more to obtain, again, assuming that the business is up to date on all of their returns. But the entity must also be in good standing when it comes to their annual reports. Have you been maintaining that compliance as required?

And then another step in Arizona is that you have to proceed with publishing. So when do you have to publish? It's within 60 days of the formal withdrawal being accepted. You would publish in the principal place of business, wherever that is located. And how long does the publishing take? That's a common question that we get. It has to be published with three consecutive publications. So is it run every week? Is it published once a month? So CSC would be able to find all of that information for you, and we would give that to you at the onset of the process.

And then once the withdrawal is completed, the Arizona Corporation Commission, that's the secretary of state there, they're appointed as the registered agent for the service upon the withdrawal. So if you had CSC as your agent, upon the withdrawal, that then becomes revoked and the Secretary of State takes over that portion of it.

Okay. So again, we've highlighted New York. We just spoke about Arizona. But there are other states where this is a requirement, where tax clearance is a major part of the process — Pennsylvania, New Jersey, Louisiana, and also Texas. I would say those are your top five where you're going to see this. And as you can see here, in Texas, it's much easier to do it perhaps online because if it's being submitted in paper, say CSC is assisting with paper, it can take upwards of 120 days or more. So we suggest what the best path forward is, and then you make the decision there at the end what would work best.

Helena, was there anything that you wanted to add here on tax clearance since it's such a big, big part?

Helena: So I just know that in the past we used to tell people that Pennsylvania always took two years. But you've actually said that they've sped it up a little bit. For the people who worry about Pennsylvania, what's the right time frame nowadays?

Jen: I will, and I have said that. And also back in the day, when I first started, Pennsylvania required originals. So we would need to have that application for tax clearance mailed into us, into our office. So that would add to it. And then they said it would take up to two years. But I really think recently they have gotten better. And I would say it's closer to a year, which is still a long time.

Helena: Sure, it's a long time.

Jen: But it's better. And again, that's assuming everything is in order. If we go to submit it and they're reviewing it, and then it comes back with issues, we weren't able to get it because the company has outstanding items that they need to take care of, then you would have to submit it again. So these are all excellent points.

Helena: And again, just to reinforce for the audience again, generally the tax clearance has to go through the Department of Revenue, Department of Taxation, something like that. It's typically not done with the secretary of state. And so the processes are different. And again, you have to get that authorization coming from an appropriate person at that entity. It just can't be CSC signing the piece of paper and saying that they want to get a tax clearance. So that's just something for the audience, again to reinforce that.

Jen: Absolutely. And also, for Pennsylvania, technically it requires two tax clearances from two different departments. So that's a very good call-out, Helena.

Helena: All right. So then why don't you take us through if the entity is not in good standing, what happens then, Jen? Oh, we jumped one. Yeah, we're too jumpy between the two of us.

Jen: A little bit.

Helena: So take us through this now. What happens here?

Jen: Absolutely. So we kind of touched on it a little bit earlier where we mentioned entities needing to have annual compliance. Again, it varies state to state. Some, like in Delaware, it's just a payment for an LLC. But for corporations, it's an actual filing. So it's important that you are aware of those standards and that you are taking care of them on a timely basis, because when you decide that you're winding everything down, the last thing you want is to hit hurdle after hurdle where you come to find out whoever was appointed within the entity to manage the compliance notices were not taking care of it.

And so, again, I would say where CSC handles the annual notices or you're part of Entity Management, we don't run into to this as much. But where you might be thinking, "Let me submit for withdrawal. It's just a one-stop process." But then when we get digging down into it, we find out actually they haven't been filing the annual reports for the last 10 years. The entity is revoked. It's cancelled with the state already. And then they say, "Well, what do we do now?" And so a lot of times CSC, we can't advise, but we can give you all your options, and then you go from there. But I will say . . .

Helena: I was going to say we don't give that legal advice on how to do it, but we can advise you on what your different options are for which pathway you want to take.

Jen: Absolutely. And I will say too that although it's the most common that an entity is revoked or cancelled by the secretary of state due to not maintaining the compliance records, it's not the only way. I do also see where the entity is revoked because they failed to maintain their registered agent. So again, a lot of times when the registered agent might discontinue the service, it's due to non-payment. Were you keeping up with that portion of it? Because it's important to maintain a registered agent so that you have an address where compliance notices, service of process, where all of that can be received and forwarded on so that you're getting those notices in a timely manner. And then you're going by what the state is saying that you have to have a registered agent. And so it doesn't get updated that it was cancelled because that was failed to be maintained.

And then I'll just run through the steps of how to reinstate here real quick. So you would want to determine the cause. I will say we help to reinstate. And then I'll go and someone will say, "Hey, we're not in a good standing anymore what happened?" I can look, depending on the state, and see that, sure, CSC helped you to reinstate back in 2023. But then after that reinstatement, you proceeded to not file the annual reports. So you're revoked again. So it's important that you determine the cause and then you make the necessary corrections so that the entity doesn't then go back into being revoked.

And then you would file the overdue reports. You pay any of the penalties that the state is assessing on that. You would submit the reinstatement forms. And then once it's active, it's been reinstated again, you can submit the withdrawal. So it just kind of adds an extra step to it.

Okay. So our next slide is about registered agent and service of process. So dissolving or withdrawing from a state does not stop the legal obligations. And I would say this is one of the most common issues we have, when we're reviewing forms ahead of submission, is there's always a section that says what's an address for service of process after the withdrawal. And I would say most commonly the address listed is CSC's address. But because the entity is terminating, for most states, we wouldn't want CSC's address listed there because the agent revokes upon the filing.

So typically we would go back and we would say in this section where it's requiring an address for service of process that the state can send anything that they receive, it can't be CSC. It needs to be within the business. Now it doesn't have to be in that state. It could be outside of the state. But I would say that's one of the most common we see where we need corrections.

Helena, was there anything you wanted to add on that?

Helena: No. And just remember that every entity has to have that registered agent. And as Jen said, just because you're terminated, or your withdrawal dissolved, you still need to keep that active going forward, making sure that you have that listed in there.

And then I think what we were going to do is we were going to jump into the really interesting topic of the termination in lieu of a regular withdrawal. And this is the part where the expertise of a company like CSC really comes in with this. So Jen, take us through this here.

Jen: I really like this topic and this slide honestly because it makes me think all the time of Texas, where in Texas, tax clearance can be such an issue. And the thing is that if you're withdrawing from Texas, but you've already cancelled your entity in the home state, say of Delaware, what you can do is Texas will allow if the entity has ceased doing business in the home state, that you can obtain a certificate reciting dissolution, and then you can submit that to the State of Texas in lieu of the withdrawal form. And it kind of circumvents that need for tax clearance. So where before you were looking at maybe if CSC was submitting the paper one, where it takes months and months, upwards of a year, you've kind of gotten around that, and you didn't even need to complete or fill out a form. CSC was just able to obtain that document from you, direct from Delaware, and then submit it direct to Texas. And then there were no issues, and you didn't even have to worry about it.

So I would say that another one where this is a good option in lieu of tax clearance is New York. You can also do it in New York. Now the only thing I will say to note with the State of New York is they do require a backer. So it's part of the form. If we give you the form to complete and you're still active in the home state and you have to go the form route, that's fine. But if you did dissolve and we're going to obtain that certificate reciting from Delaware to file in New York, we just have to make sure that we're getting that backer from you. And all it is, is the name and address of someone in the entity that's authorizing the filing. So again, a lot of people would say, "Hey, can we just list CSC here?" And for this particular case for New York, no, it has to be somebody within the entity. So we would work to get that for you. But that's just one extra step that New York has. But it's still the same process, where you're filing something from the home state, and you don't need to file the actual form and it could be a way around the tax clearance.

Helena: All right. So let's talk a little bit about a checklist for terminating a business. And so the list that we have is not perfectly exhaustive. It's reflective of some of the different steps. But of course, your own situation is unique. But why don't you take us through these really quickly, Jen?

Jen: Yes. I would say that, for number one, filing a notice of the intent to dissolve, I don't see that too much. So it says "if required." Number two, obtaining a tax clearance letter, that's very common. And I will say if a client comes to me and they say, "I need your help," and they already have the tax clearance letter in hand for Alabama, for Texas, I give like a woohoo, because I know we have what we need.

We've got the tax clearance letter, and then we can move right to step three, which is filing the articles of dissolution. And then after you do that, you have your withdrawal of the foreign states. Maybe it's just registered in one state. Maybe it's registered across all 50 states. So depending on the on the size, the complexity.

Then you would want to go ahead with cancelling your permits and your business license. So again, I handle mostly with the secretary of state portion of it. So that would be numbers 2, 3, and 4. But certainly, CSC can assist with that as well. And then also cancelling the assumed name certificates. Is the assumed name filed at the state level? Is it a county? So we can certainly help you with those requirements and laying it all out for you.

And then number seven, filing the evidence of the dissolution or the merger because it's not always a voluntary dissolution. Maybe you decided to merge the entity. But the steps should be should be pretty much the same.

Helena: So our next slide that we've got coming up over here is we have a spreadsheet, and it's some of the states that we've mentioned a few times here, New York, Delaware, Arizona, you've heard. And Jen put this together just for everybody to see as an example of if you were doing multiple states or different steps, the complexity that can be involved in this. And you can see where the fees come in, publication requirements, and all that. So Jen, talk a little bit because our time is kind of running out here, but can you talk just really briefly about how this impacts it for our customers?

Jen: I can. Absolutely. I'm a visual learner, so putting it in a chart like this really helps me when there there's a lot of content. So absolutely.

You can see that publication is actually pretty rare. And again, this is just a few states that we pulled. But it is important that you're not skipping that step. If you think you're doing 25 states and maybe only 2 of them are publishing, you don't want to then be hit with penalties on the backend if you don't take care of that.

And Helena is absolutely right, the fees, I mean, California, it's zero. But if you're filing it over the counter, it's $15 versus Delaware has minimum $245. So it varies.

So we like to pull all that information together for you and give it to you in one place at one time so that you have everything upfront that you need to review to make your decisions.

Helena: So what I do want to give a plug to CSC is every year we publish what we call internally the DBOYS Guide, the "Doing Business Outside Your State Guide." And this talks about whether or not you actually have to do a foreign qualification, what some of the different things are that raise to that level. So this guide walks you through that. And I know that we're talking about the dissolutions and withdrawals, but it's still that really, really helpful step over there. And we always publish it. It's somewhere late June, early July. I always say it's around fourth of July. It's after all of the spring legislative sessions have met. And we update it with any changes that are out there, any statutory changes. And it's completely free to download. So you can see that's where that email address happens to be over there.