There are a number of reasons why you may be closing your business. You might be retiring, moving on to something new, or you may not be making it financially. Whatever the reason, there are a series of steps that must be taken in order to avoid tax issues, financial consequences, and issues with employees and clients. Closing a business often has a variety of emotions attached to it, and it can be a stressful time. However, if you understand the basic steps of dissolving your company it will be a much smoother process.
Mutual Agreement to Close
If you are in business as a sole proprietor, you make the decision to close on your own accord. However, if you are in a written partnership, a corporation, or an LLC, there are rules that need to be followed according to the agreement, state laws, or articles of incorporation. Often the closure of a business requires a majority vote by the other partners and owners. Once the decision is made, file the operating documents with the secretary of state and make sure the rules are followed so that disagreements can be avoided later on.
Dissolve With Local, State, and Federal Government Offices
As an LLC or a corporation, it is important to officially dissolve your business so that you are not liable for business filings or taxes in your state. The necessary forms are usually available through your secretary of state, and you will list your liabilities and debts and how you will distribute your assets.
In many states you also need to be cleared from the state tax board, stating that all of your business taxes have been paid. This tax clearance is often required before you can officially file for dissolution. You also need to file final tax forms with the IRS and make sure payroll taxes are kept current.
Cancel Licenses and Permits
Cancel all business licenses or permits you have for the business. This will prevent anyone else from using your name or account to run a business and leave you with the tax implications and related penalties. Termination can be done through the agency that issued it.
Businesses that are filed as LLCs, partnerships, or corporations must inform all creditors that the business is shutting down. These include insurers, lenders, vendors, suppliers, and service providers. Let them know the entity will no longer be using their services and how the business plans to close up business with each creditor.
LLCs and corporations must inform their creditors of the following:
•That the company is dissolving
•An address to which to send claims
•Any deadline to submit future claims, such as 90 or 120 days from the notice date
In regards to insurers of any liability, be honest about possible legal issues that may come up against the business. If you do not divulge these, there is a chance you could lose coverage and be required to pay any damages from your own wallet.
Others to Inform
Depending on your particular business, there may be a variety of other people you need to inform about your closing. Your landlord will need to know, according to the lease agreement. This often includes paying rent for the remaining months or until a new tenant is found.
You will obviously need to tell your employees, and they should have a minimum of two weeks’ notice. Also give your customers ample notice and do your best to complete final projects, fill last orders, and fulfill other obligations. If you are owed any money, do your best to collect this as quickly as possible, as it is harder to do so once the company no longer legally exists.
Closing a business is never easy. However, having a plan in place will help decrease related stress.
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.