How to Close a Business
While not as complex as starting a business, closing a business presents its own unique set of challenges. Business owners who close their business hastily or incorrectly typically create new problems, including liability issues that may not surface until much later. This section provides articles about how to close a business, how to manage a financially distressed business prior to closure, what to consider when being sued after closing a business, links to related forms, and more.
Closing Down Your Business: a Chronology
There are certain key events and an order in which they take place in order to properly close a business. State-specific regulations and procedures for more complicated business structures such as corporations, LLCs, and written partnerships are found elsewhere in this section. The following are steps that must generally be taken in the order they normally occur:
- Vote to dissolve.
- Put a dissolution team together.
- List assets and take inventory.
- Set a timetable.
- Make the announcement.
- Work out contracts and obligations that extend beyond your closing date.
- Close the business.
- Dispose of the assets.
- Pay off the business debts.
- Prepare the final tax returns.
- File dissolution papers with the state.
- Prepare final forms for federal, state, and local governments.
- Close the business bank account.
- Keep all business records and other business documents for five years.
Necessary Steps to Dissolve Your Company
There are a number of situations in which the structure of your company or state or local requirements may impact your process for closing a business. Sole proprietors will have fewer issues closing a company, but when partners or board members are involved it can become significantly more complicated. When you are part of a general partnership with no written partnership agreement all you need to do is give your partner(s) notice of your express desire to withdraw from the partnership.
As with many communications in a legal context it is wise to provide this notice in writing and retain both a copy and proof of delivery of the same. If you are part of a partnership with a written partnership agreement, an LLC or a corporation you will need to follow the rules of the dissolution clause in your partnership agreement, articles of incorporation, or the relevant state laws. Agreements of this sort generally require a two-thirds or majority vote in order to dissolve the business.
After following the relevant organization rules for dissolution you may need to file you dissolution with the state. Even when you are not required to do (as with most sole proprietorships) it can still be wise to file papers of this sort since it places creditors on notice that the business cannot incur further business debt and relieving the company of future tax burdens. Similarly, notifying the IRS, state, and local tax agencies of the dissolution of your business helps ensure that any tax issues are properly resolved when the company closes.
Finally, you should cancel any relevant business licenses to prevent their misuse and notify your creditors, lenders, insurers, suppliers, vendors, and service providers to close accounts for the business.