Termination of a Company – Business Lawyer Service

Article by Joanne Cassidy

A company may wish to terminate its existence for any number of reasons.  Typically, the owners of the company just want to stop doing business under that entity. Occasionally, the duration period stated in the formation documents expires or an event of termination stated in the formation documents occurs.  In addition, termination may be required by law or by a court.

Business Lawyer for Termination of a Company

Generally, there are certain steps your business lawyer will lead the company through for an orderly termination of its existence.  First the company should go through a winding up process. In winding up, the company stops doing business and gathers its property for sale or distribution to its creditors and shareholders or members.  The company must pay its liabilities and obligations or make provision for payment.  Then the company may distribute its remaining assets to the owners of the company.

Certificate of Termination Prepared by a Business Lawyer

At the completion of the winding up process, your business lawyer will prepare a certificate of termination to be filed with the Texas secretary of state.  The certificate must state:

  1. The name of the entity, the entity type, date of formation and file number assigned by the secretary of state;
  2. The name and address of each governing person who are:
    (a) a director of a corporation,
    (b) a director or member of the executive committee of a professional association,
    (c) a manager  or member (if the LLC does not have managers) of a limited liability company, or
    (d) the general partner of a partnership;
  3. The reason for termination;
  4. That the company has complied with the terms of the Texas Business Organizations Code governing winding up; and
  5. The date of effectiveness of the certificate of termination.

The person submitting the certificate of termination must date it and state that he is signing the document subject to the penalties imposed by law for the submission of a materially false or fraudulent instrument and certify under penalty of perjury that he is authorized to execute the document.

Certificate from the Comptroller

In addition to the certificate of termination, the company must file a certificate from the Texas comptroller of public accounts stating that all taxes have been paid and the entity is in good standing for termination.  The company may request the certificate by mail or in person at one of the comptroller’s local offices. A certificate from the comptroller’s web site is not sufficient for termination. Requesting the certificate by mail may be problematic because of the lag time between the request and the receipt of the certificate.  If franchise tax returns are due before the request is processed, the comptroller will not be able to issue the certificate until the tax reports are filed, even if no tax is owed.

Once the certificate of termination is complete and the company has its tax certificate, your business lawyer will send duplicate copies of the certificate of termination and the tax certificate of good standing to the secretary of state, together with the filing fee, which currently is $40.  The fee may be paid by personal check, money order or credit card, although there is a 2.7 percent convenience fee for credit card payment.

Termination Through Neglect

It is also possible to terminate a company’s existence through neglect.  For instance, if a company does not file franchise tax returns or other documents when required by the secretary of state, after notice and opportunity to cure, the secretary of state may issue a forfeiture of existence.  While such involuntary termination is not uncommon, it is better practice to go through the statutory winding up and termination procedure because it allows the company to maintain control over how and when the company will terminate.