Plan of Liquidation and Dissolution

Plan of Liquidation and Dissolution

Drafts a formal plan for winding down a U.S. corporation — satisfying creditors, distributing assets, and achieving legal dissolution under state statutes and federal tax rules.

Prerequisites

Gather before drafting:

1. Corporate formation documents — articles, bylaws, amendments (especially liquidation preferences for multiple share classes)
2. Board resolution — approving dissolution with vote count, quorum, date
3. Shareholder approval — minutes or written consent showing requisite vote threshold met
4. Creditor inventory — known creditors with addresses, amounts, secured/unsecured status
5. Asset inventory — real property, equipment, IP, receivables, investments, cash
6. Pending obligations — litigation, contracts, employee benefits, environmental liabilities
7. State of incorporation — jurisdiction-specific dissolution statute requirements

Quick Start

1. Confirm board and shareholder approvals are documented
2. Identify state dissolution statute (e.g., DGCL § 275, RMBCA § 14.02) [VERIFY]
3. Draft plan sections in order below
4. Mark all jurisdiction-specific items with [VERIFY]
5. Use bracketed placeholders for dates and amounts the client must confirm

Plan Sections

1. Preamble & Recitals

2. Approval & Authorization

• Board vote: date, vote count, quorum confirmed
• Shareholder vote: date, shares for/against by class, statutory threshold met
• Written consent in lieu of meeting: document notice/consent compliance
• Separate class votes if preferred stock has special voting rights

3. Creditor & Stakeholder Notice

Timeline must comply with state statute for post-filing notice periods.

4. Liquidation Process

Priority waterfall:

1. Liquidation costs and expenses
2. Employee wages and benefits
3. Tax obligations
4. Secured creditor claims
5. Unsecured creditor claims
6. Shareholder distributions

Wind-down checklist:

• [ ] Complete or terminate existing contracts
• [ ] Collect accounts receivable
• [ ] Liquidate inventory and equipment
• [ ] Resolve pending litigation
• [ ] Address IP assets (assignment, abandonment, licensing)
• [ ] Establish reserves for contingent/disputed/unliquidated claims
• [ ] Identify liquidation oversight person or committee
• [ ] Engage professionals as needed (appraisers, auctioneers)

5. Asset Distribution

• Per-share calculation methodology for each share class
• Liquidation preferences and participation rights per articles
• Distribution timeline
• In-kind distributions: valuation method and allocation
• Tax treatment: corporate gain/loss recognition; shareholder exchange under IRC § 331 [VERIFY]
• Nonprofit entities: distribution to qualifying § 501(c)(3) organizations if applicable

6. Dissolution Filings

Obtain and retain certified copies of all filed documents.

7. Tax & Compliance

• IRS Form 966 — file within 30 days of adopting plan
• Final federal return — Form 1120 (or variant), mark as final
• Final state returns — income, franchise, sales, employment tax
• Cancel EIN, sales tax permits, business licenses
• Obtain tax clearances from all relevant jurisdictions
• Record retention — maintain records 3–7 years post-dissolution

8. Effective Date & Execution

• Plan effective date and anticipated dissolution date
• Dissolution effective upon filing (or later date if specified)
• Signature blocks: President and Secretary (or equivalent officers)
• Certification of authority and accuracy

Common Pitfalls

• Jurisdiction variance — dissolution procedures differ significantly by state; confirm all statutory citations, notice periods, and filing requirements against state of incorporation
• Fiduciary exposure — draft provisions demonstrating good faith, fair dealing, and compliance with duties to shareholders and creditors
• Minority shareholder challenges — ensure procedural fairness is documented to anticipate objections
• Special circumstances — flag pending litigation, environmental liabilities, ERISA plan terminations, or industry-specific regulatory issues
• Speculative timelines — never include concrete dates without client confirmation; use bracketed placeholders