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Tax questions Answered: Dissolving a Corporation

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Hi Wayne,

Just read your very informative article from WebProNews. In the article you say that to dissolve an S corp is a can of worms, why?

I launched my second ecommerce company in May of 02 in Massachusetts. I incorporated as an S corp. In October of 02 I moved to New York. I decided that since the company was not a huge success (yet) that there was really no reason for me to keep a corporation in Mass while living in NY.

I went online and downloaded the form to Dissolve a Corporation. Filled out the form and sent it in.

Am I missing something?
My company is now back to a Sole Prop. Which from what I understand is much simpler. Especially for a home based internet company with one owner and no employees. Isn’t the only real value of a corporation to protect yourself from being sued? If that is really the case, and the “corporation” is thinly funded, wouldn’t it be really easy for someone to just “pierce the corporate veil” and go after the one and only owner/employee. And if that is the case doesn’t that make the expense of being incorporated not worth it?

Regards,
Jon Carmen
http://www.splatdogs.net

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Hi Jon:

Great email. The “can of worms” comment is simply to make readers aware that dissolving a corp can be just that, and therefore a topic way beyond the scope of an article which is intended to provide a very basic intro to biz taxes.

Your comments are an excellent example of how everybody’s situation is different. In your case, maybe you did everything necessary to properly dissolve the corporation. My advice is to consult a tax professional in your area to make sure.

Yes, it is possible for the corporate veil to be pierced — not just for a thinly funded one-person biz, but also multi-million dollar mega-corps which are using the corporate entity to shield the illegal activities of its owners. How do you spell corporate fraud? E-N-R-O-N.

The corporate veil issue is, alas, another can of worms, not easily addressed in an article or an email. Limited liability is a major advantage of the corporation and certainly the main reason why many businesses choose this format. There are many other advantages as well, including tax savings, which was the main point of my article. Sure, the sole prop is simpler and may be the best entity type for you. For many others, the sole prop is a bad choice. It all depends of the “facts and circumstances” of your particular situation.

Which brings me full circle back to my original comment in the article, that in an article format, “we can’t go there”!

Sorry I can’t offer you more specific and authoritative input. But your questions deal with very complex issues that I can only address in a general way.

Thanks again for your comments. And I wish you much
success, Jon.

Sincerely,
Wayne

Wayne M. Davies is author of 3 tax-slashing
eBooks for small business owners and the self-employed. For a
free copy of Wayne’s 25-page report, “How To Instantly Double
Your Deductions” visit http://www.YouSaveOnTaxes.com

Tax questions Answered: Dissolving a Corporation
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About Wayne M. Davies
Wayne M. Davies is author of 3 tax-slashing eBooks for small business owners and the self-employed. For a free copy of Wayne's 25-page report, "How To Instantly Double Your Deductions" visit http://www.YouSaveOnTaxes.com WebProNews Writer
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