Closing your business can be a tough but necessary decision. Business owners find themselves wanting to close their businesses for many reasons, including failing to meet revenue projections, lack of passion, loss of key employees, or health issues. Whatever the reason is you’ve become interested in closing your business, it’s necessary for you to do it responsibly.
Steps You Should Take
There are various financial, legal, and tax issues involved in closing down a business. You can’t just walk away. Here is a chronological guide you should follow when you’re closing up shop.
1. Make the decision to dissolve. If you are a sole proprietor, then you can make this decision on your own. On the other hand, limited liability companies, corporations, and partnerships require that all co-owners make the decision together, typically in the form of a vote. This decision should be made in accordance with the provisions in your articles of organization, articles of incorporation, or partnership agreement.
2. Organize a dissolution team and get expert advice. This team is responsible for helping you and your co-owners through this highly detailed process. It may include a CPA, attorney, business valuation expert, tax experts, or the IRS.
3. Receive a business valuation. This step will help prevent disputes from occurring later. It will also come in handy when you are putting figures together for your tax return.
4. Make a timely announcement. Inform your employees, customers, and creditors you are closing before they learn it from another source. If you wait too long and information gets out, it could complicate the dissolution process and decrease your revenues.
5. Make contracts regarding items past the business’s closing date. This step involves negotiating payments on any equipment, automobiles, and leases.
6. Shut down the business. Formally end all operations of your business, including services, sales, and production.
7. Get rid of your assets. These assets may include equipment, automobiles, and furniture.
8. Terminate insurance. End any business insurance coverage.
9. Pay off debts. Notify creditors and lenders of the closing and settle any debt that remains. Make contact with the associates to whom you are indebted, or are indebted to you. This step may involve discussions with your attorney, accountant, and insurers.
10. Prepare tax returns: You will be required to prepare state and federal tax forms. Make sure to indicate it is a final return by checking the relevant box. This should all be done with the consultation of a tax expert.
11. File dissolution documents. If you are a limited partnership, limited liability partnership, partnership, limited liability company, or corporation you are required to inform the state that your business has dissolved. If you fail to do this, you will remain liable for filings and taxes.
12. File forms for relevant local, state, and federal government agencies. Notify each agency involved in your business in any way, including issuing you licenses, registering your business, and giving you tax numbers. You should also cancel all permits, licenses, registrations, and business names.
13. Close the business’s bank account.
14. Maintain records and documents for seven years. In some cases this is legally required, but even when it isn’t, it’s a smart thing to do. It’s particularly important to keep employment and tax records. The IRS may decide to audit your business even after it has closed, and you will need these documents.
While closing your business can be a complicated multi-step process, this gives you a general outline of how things should go. It’s important to review all of this information so that you close your business responsibly. Following all laws, regulations, and expert advice will ensure your business is closed in an effective manner. Don’t forget to contact relevant experts such as attorneys and lawyers.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.