What to Do Before Closing a Business
Many small business owners foresee the closing of their businesses some time before they occur. It is important to take certain steps to avoid personal liability related to the closing of the business for business owners of just about all types of companies. This involves keeping personal and company money separate from one another, making sure taxes are current and, frequently, considering filing for bankruptcy.
Closing the Business: First Steps
When businesses first incorporate, documentation is created that stipulates how the business owners intend to come to an agreement to one day close the company. In the event that no such documentation exists, there are generally state guidelines business owners can rely on for instruction. Business owners looking to close down will also want to contact any professionals they plan to involve in the process, such as legal or tax professionals.
Shuttering the Business: An Overview
In rare instances, closing a business can be relatively uncomplicated. For those who aren’t sole proprietors, however, it can prove more involved. For other types of businesses, including corporations and limited liability companies, the process of shutting down a business is somewhat complex. Among the many steps involved are filing dissolution papers with the state, filing the paperwork necessary to terminate business permits and licensure and letting state and federal tax agencies know of the upcoming shutdown. Business owners also should expect to have to notify any creditors and other business contacts of the plan to close, pay any outstanding debts, collect any money still owed to the business and sell off any remaining assets. They will also want to be sure to cancel any business insurance policies they currently hold for the closed company. Because of the many steps and regulations involved in closing down a business, owners are generally advised to hire professional legal assistance to ensure the process is done correctly and in accordance with all laws.
Important Documentation Needed for Closing a Business
Most types of companies must file certain forms with appropriate agencies when shutting down. Corporations, LLCs, LLPs and some partnerships are among the types of entities that must inform the state about any business closings. The governments at the local, state and federal levels may require additional notification or documentation regarding the upcoming closing of a business, so again, it is generally wise to consult a legal or tax professional with regard to many of these matters.
Closing a Business: The Final Steps
Once all proper agencies have been notified and all other necessary steps have been taken, it is time to shut down a company’s bank account. The next step is to keep all important business documents on file for a minimum of seven years. This protects former business owners in the event of a tax audit.
Legal Implications Following the Close of a Business
Frequently, business owners pay off their creditors before they shutter their doors and then move on from the company once and for all. Others, however, such as product manufacturers, face the real possibility of being the subject of a post-dissolution lawsuit. In the event that this occurs, former business owners should consult their own attorneys for guidance, taking care to do so before answering any questions asked of them by attorneys working for the plaintiff. In some states, statutes of limitations exist that dictate how long business owners can be held accountable. One of the best preventative measures a small business owner can take in protecting himself or herself against post-dissolution lawsuits is to closely adhere to the regulations and notification guidelines involved in the closing process in the first place.
Shutting down a business can prove taxing, both personally and professionally. It can become even more so if certain steps aren’t taken to ensure the proper parties are notified and that all financial obligations are met, so it is essential that anyone considering shuttering a company familiarize themselves with the process to avoid any financial or legal repercussions.
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