Notifying Shareholders When Shutting Down a Startup
October 25, 2023
Question:
I’m a founder shutting down my startup. How do I formally notify shareholders that the company is dissolving so they can get a tax write off for their original investment?
Answer:
The proper way to officially notify shareholders is through a board resolution. This is a formal document that records decisions made by the board of directors.
Any board member can write up a resolution to dissolve the company.
The full board then votes to approve the resolution. Once passed, the resolution serves as official notice to shareholders.
You can circulate the approved board resolution to all shareholders. This gives them documentation showing their investment is written off.
If you’re unfamiliar with board resolutions but want to learn more, here is a guide that goes deeper into the subject. The key is having the official record of the board’s decision to close up shop.
Consult your legal counsel if you need help formatting the resolution or writing the legal language.
The main takeaway:
- Shareholders must be notified when a startup dissolves through a board resolution.
- Any board member can write the resolution to close the company.
- Once approved by the board, circulate the resolution as notice to shareholders.
- This provides documentation that their investment is lost so they can write it off.