10 Steps to closing down a business
- Close the Business as Required by Your Business Articles
If you’re a sole proprietor, the formalities for closing down a business are less stringent. It is a decision you make on your own, without the need to consult with partners or board members.
However, if your business is a partnership with a written partnership agreement, an LLC, or a corporation, you will need to follow the rules of dissolution contained in the partnership agreement, operating agreement, or articles of incorporation, and perhaps reference the state statutes if your agreements do not include terms pertaining to winding down a business. Typically, these agreements contain clauses that require a two-thirds or majority vote in order to dissolve the business.
These operating documents should be archived in the company’s records as well as filed with the state.
- File with the State
All limited and general partnerships that filed with the state at the beginning of the partnership must file dissolution papers with the state. This places creditors on notice that the business cannot incur any further business debt.
Once you’ve voted to dissolve an LLC or corporation, you must file paperwork with the state, certifying the decision to terminate the business. This paperwork will relieve the company of future tax burdens, and give official notice that the company can no longer take on business debt.
- Notify the IRS and State and Local Tax Agencies
When you end a business, the company is still liable for any taxes for the prior and current year. This means that you must continue making deductions from paychecks and continue payroll reporting obligations. You’ll need to file your quarterly or annual taxes, and capital gains, and liquidations forms.
You’ll also be responsible for all final tax forms that need to be filed. This includes income tax, any sales tax that has been collected, and payroll taxes.
The IRS has a comprehensive checklist for business owners who are preparing to shut down. The checklist contains forms that must be filled out or continued to be filed as the business shuts down.
Consulting an accountant, tax advisor, or attorney is advised in order to meet the particular requirements of your locality and state tax agencies.
- Cancel Business Licenses
In addition to reporting to local, state, and federal tax agencies, you will need to file paperwork other local agencies to terminate business licenses or permits. By cancelling licenses and permits, you prevent others from using your business account or name to run a business and leave you holding the bag for taxes or penalties. Find the agency that granted any license you may have and terminate everything.
- Notification to Creditors
Whether you’re a partnership, LLC, or corporation, businesses have an obligation to creditors to inform them of an impending closing. You’ll need to inform lenders, insurers, suppliers, vendors, and service providers that the business will no longer be contracting for their services and give a method as to how the company intends to wind up its business with those creditors.
Certain states may also require a dissolving company to place an ad in the local newspaper or other publication announcing the closing.
- Settle Creditor Claims
Once you get claims from creditors, you’ll need to inspect the claims and either accept or reject them.
- Collect Money Owed to the Business
The flip side of settling creditor claims is to collect any money owed to the company. It is advisable to collect any money owed several months in advance to the closing of your business, as it will be challenging to do so, once your doors are closed.
- Inform Other Stakeholders About the Closure
You will need to let your landlord, clients employees about the close of the business. For the landlord, you will need to follow the terms outlined in the lease agreement.
In terms of informing Clients and Employees, it is a good idea to be as considerate as possible. Providing fair warning is not only proper business etiquette, it maintains good relationships. Former clients and employees can be contacted when you open your next business, as long as you leave on good terms. Depending on your industry, clients may be required by law to be informed before your business closes.
Customers should also be told of the impending closing. Be sure to service their orders to the best of your ability. These people could be your first customers at your next business venture. Also, as noted above, try to collect money owed to you while the business is still running.
- Sell and Distribute Your Assets
After you’ve settled the claims of your creditors, all that’s left is the business assets, The distribution of these assets remains proportional to the stake of each owner in the business.
- Find the Right Attorney to Help You Dissolve Your Business
Finding the right attorney to help you during this stressful time can help alleviate some of the stress and trauma related to closing your business.
If you need help closing down your business, feel free to email us at [email protected] or set up an appointment.