Plan of Liquidation and Dissolution - Enhanced Workflow Prompt

You are tasked with drafting a comprehensive Plan of Liquidation and Dissolution for a corporate entity. This document serves as the formal roadmap for winding down business operations, satisfying creditor claims, distributing remaining assets, and achieving legal dissolution. The plan must comply with applicable state corporation statutes, federal tax requirements, and fiduciary duties owed to shareholders and creditors.

Document Structure and Requirements

Preamble and Recitals Section

Begin by formally identifying the corporation with its complete legal name, state and date of incorporation, jurisdiction, and principal place of business. Draft recitals that clearly articulate the board of directors' determination that liquidation and dissolution serve the best interests of the corporation and its shareholders. Reference the specific statutory authority under which the dissolution is proceeding, whether voluntary dissolution under state business corporation law or another applicable framework. The recitals should establish the factual and legal foundation for the dissolution, including any business circumstances that led to this decision, while maintaining appropriate professional tone and avoiding unnecessary detail that might create liability exposure.

Approval and Authorization Section

Document with precision the corporate governance actions authorizing the liquidation and dissolution. Specify the date of the board of directors meeting at which dissolution was approved, the vote count, and confirmation that a quorum was present. Detail the subsequent shareholder approval, including the meeting date, the class and number of shares voting for and against the plan, and verification that the requisite statutory threshold was met (typically majority or supermajority depending on jurisdiction and charter provisions). If written consent was used in lieu of a meeting, document this alternative procedure and confirm compliance with applicable notice and consent requirements. Address any special voting rights of preferred shareholders or other classes of equity holders that may require separate class votes.

Notice to Creditors and Stakeholders Section

Establish a comprehensive notification protocol that satisfies both statutory requirements and fiduciary obligations. Describe the process for providing formal notice to known creditors, including the method of delivery (certified mail, personal service, or other legally sufficient means), the content of the notice, and the deadline by which claims must be submitted. Outline the publication requirements for unknown or unascertainable creditors, specifying the newspapers or publications to be used, frequency of publication, and duration of the publication period as required by state law. Address notification obligations to employees, customers, vendors, regulatory agencies, and tax authorities. Include specific timelines that comply with state statutes, which typically require notices to be sent within a specified period after filing articles of dissolution and allow creditors a minimum claims period (often 120 days for known creditors and longer for published notice to unknown creditors).

Liquidation Process Section

Detail the systematic approach to winding up business operations and converting assets to cash or distributable form. Describe the process for completing or terminating existing contracts, collecting accounts receivable, liquidating inventory and equipment, resolving pending litigation, and addressing intellectual property assets. Establish the priority sequence for satisfying obligations: first, costs and expenses of liquidation; second, employee wages and benefits; third, tax obligations; fourth, secured creditor claims; fifth, unsecured creditor claims; and finally, distributions to shareholders. Identify the person or committee responsible for overseeing the liquidation process and their authority to engage professionals such as appraisers, auctioneers, or liquidation specialists. Address the treatment of contingent liabilities and the establishment of reasonable reserves for disputed or unliquidated claims.

Distribution of Assets Section

Specify the methodology for distributing remaining assets after satisfaction of all creditor claims and establishment of necessary reserves. For corporations with multiple classes of stock, detail the liquidation preferences, participation rights, and distribution priorities as established in the articles of incorporation. Provide the calculation method for determining per-share distributions and the timeline for making distributions to shareholders. If assets will be distributed in kind rather than cash, describe the valuation methodology and allocation process. Address tax considerations affecting distributions, including the recognition of gain or loss by the corporation and the tax treatment to shareholders. For nonprofit entities, specify the distribution of assets to qualifying organizations as required by Section 501(c)(3) or other applicable tax-exempt provisions.

Filing for Dissolution Section

Enumerate the required filings with state authorities to effectuate legal dissolution. Identify the specific forms required by the jurisdiction, typically including Articles of Dissolution or Certificate of Dissolution filed with the Secretary of State. Specify the information that must be included in the filing: corporate name, date of incorporation, statement that dissolution has been authorized, statement regarding creditor notification, and confirmation that taxes have been paid or adequately provided for. Address any state-specific requirements such as tax clearance certificates, final reports, or consent from regulatory agencies. Establish responsibility for ensuring timely filing and obtaining certified copies of filed documents for corporate records.

Tax and Compliance Matters Section

Address all federal and state tax obligations associated with dissolution. Require filing of IRS Form 966 (Corporate Dissolution or Liquidation) within 30 days after adopting the resolution or plan to dissolve. Specify the preparation and filing of final federal income tax returns (Form 1120 or applicable variant) and final state income, franchise, sales, and employment tax returns. Detail the process for obtaining tax clearances or certificates of good standing from relevant tax authorities. Address the cancellation of employer identification numbers, sales tax permits, and business licenses. Outline ongoing compliance obligations such as maintaining records for the statutory period (generally three to seven years), addressing post-dissolution claims, and handling any tax audits or disputes that arise after dissolution.

Effective Date and Execution Section

Establish the effective date of the plan and the anticipated date of legal dissolution, noting that actual dissolution becomes effective upon filing of Articles of Dissolution with the state or such later date as specified in the filing. Include signature blocks for authorized corporate officers, typically the president and secretary, with acknowledgment that they are executing the plan pursuant to proper authorization. Confirm that the signatories have authority to bind the corporation and that their execution constitutes certification of the facts stated in the plan.

Drafting Standards and Legal Considerations

Throughout the document, maintain formal legal drafting conventions including defined terms, consistent terminology, and precise language. Ensure compliance with the specific requirements of the state of incorporation, as dissolution procedures vary significantly by jurisdiction. Consider potential challenges from minority shareholders, creditors, or other stakeholders, and draft provisions that demonstrate good faith, fair dealing, and compliance with fiduciary duties. Address any special circumstances such as pending litigation, environmental liabilities, employee benefit plan terminations, or regulatory compliance issues specific to the industry.

The completed Plan of Liquidation and Dissolution should serve as both a practical operational guide for the liquidation process and a legally sufficient document that, together with required state filings, accomplishes the orderly and lawful dissolution of the corporate entity while protecting the interests of shareholders and satisfying obligations to creditors and other stakeholders.