Closing a Business
How To Close A Business, Legally: Steps for Business Owners
“Quitting is not a failure; it's simply a decision to stop doing something that isn't working.” – Tony Robbins
I didn’t go to business school (barely made it out of undergrad) but in an MBA program do they have classes on how to close a business? I doubt it, so let’s go through the process of how to close a business, step by step.
Note, this is not the process if you’re selling, passing the biz off to a family member, or the business is otherwise continuing on in one form or another in your absence.
The dissolution of a business entity should be undertaken with care and attention to detail – this is, after all, a legal process. Here’s what needs to happen to legally end the existence of your business, as a general guideline…
1) Decide and Document: Formally document the decision to dissolve. The first step is, potentially, the hardest one of all. It’s a decision that takes time, and if you’re not a solopreneur, this might involve a board resolution (for corporations) or a member vote (for LLCs). Your entity designation will dictate the formal process to officially cease the business.
2) Tell Stakeholders: Inform relevant entities. Here, we’re talking about informing creditors, employees, suppliers, customers, and any relevant government agencies (IRS, state, licensing agencies, etc.) about the dissolution. Obviously, order is important here for preserving relationships and helping people plan for what’s next.
For banks and suppliers, your notice should include a plan for how you’re going to pay them what they’re owed. For employees, there are legal stipulations to follow regarding appropriate notice and severance pay so be sure you’re compliant there.
And for customers, be sure to provide them with information about any outstanding orders, refunds, or warranties.
3) Pay Your Taxes: File the proper returns and pay the government. The next step in dealing with your financial obligations is to file final tax returns (federal, state, and local) and settle outstanding tax debts. In addition to what your tax returns show, don’t forget about sales tax, employment tax, and any penalties and interest.
If you want to work with us on this we can help.
4) Settle Your Debts: Pay everyone else. Then it’s time to pay off all outstanding business debts, including loans and accounts payable. If you’re unable to pay everything in full, you might be able to negotiate with creditors to reach settlement agreements.
Though in extreme cases, bankruptcy may be a viable option to restructure debts or liquidate assets.
5) Distribute Assets: Sell, liquidate, or distribute remaining business assets. This only comes after all outstanding debts have been settled. You can sell or dispose of any remaining inventory and equipment. Any real estate owned by the business can be sold or leased. And don’t forget about intellectual property – transfer or sell any intellectual property assets, such as patents, trademarks, or copyrights.
6) File Articles of Dissolution: Formally tell the state you’re closing. Officially called “Articles of Dissolution” or “Certificate of Dissolution,” this filing will formally dissolve the entity. Pay attention to any deadlines set by your state for the filing of these dissolution documents.
7) Pay Attention To Recordkeeping: Maintain business records for a certain period as required by law. This includes financial records, tax returns, contracts, and employee records. Be sure to follow state and federal laws for specific record retention requirements.
The process of how to close your business may take some time, tha't’s ok. Don’t expect to wrap up the complete dissolution of your business quickly. It took time to start your business, and shutting it down will be more of the same. Documents take time to be filed and recorded, and assets take time to sell, but eventually, what’s left of the payout (if any) will make its way to your account.
