All good things must come to an end. And eventually, for one reason or another, it might be time to shut the doors on your business. Maybe it’s a matter of economics – the money just isn’t there to keep the business running. Or, perhaps you’ve moved on to another job or business venture. No matter your reasoning, you’ll need to take care of a few loose ends in order to close your business legally.
For example, let’s say you formed an LLC for your dog walking business a few years ago. But over the past year, you’ve gotten a full-time job and haven’t even thought about dog walking. You don’t have any clients, are not actively promoting your business, and turn away anyone who’s interested. You’ve got no revenue or customers – you’ve pretty much closed your business, right?
Well, not exactly. Without a formal termination of the LLC or Corporation, you can still be charged fees associated with the business. You’ll still be expected to file an annual report (where applicable). You’ll still be required to submit tax returns to the IRS and state. And, legally you’re not allowed to distribute any Corporate/LLC assets to shareholders until the company has been properly dissolved.
Closing your business legally isn’t complicated. There are a few key steps to keep in mind. If you’ve already stopped doing business, it’s wise to wrap things up before the start of the New Year. By dissolving your business within 2010, you’ll be free from any obligations in 2011, and have a clean slate to focus on whatever’s next.
1. Dissolve your Corporation or LLC:
If you’ve been operating as a Corporation or LLC, you’ll need to officially and formally dissolve your business. This is done by filing an “Articles of Dissolution” or “Certificate of Termination” document with the Secretary of State within the state that your Corporation or LLC was formed. While this is a pretty easy task, you should work with a legal document filing service or your attorney, since laws regarding corporate dissolution vary by state. These professionals can advise you on your state’s particular requirements and make sure your company is closed properly, and legally.
And if you’ve been doing business as a Corporation, LLC, or Partnership, all business associates must vote to close the business. You’ll need to record the final vote in the minutes of a meeting or with a written consent form. If shares have been issued in a Corporation, two thirds of all voting shares must agree to dissolve the company (specific requirements vary by state). If no shares have been issued, then the Board of Directors must approve the dissolution.
2. Make sure your company is in good business standing – pay any back taxes:
In most cases, your company will be required to pay any back taxes before you’ll be allowed to dissolve it. For example, you may need to receive a “tax clearance” (or “consent to dissolution”) from your state tax board that shows that all of your business taxes have been paid and you are in good standing.
3. Cancel permits, licenses, or fictitious business names (DBAs):
You should also cancel any kind of permit or licenses you hold with the state or county. There’s no reason to hold on to them, and you don’t want to be liable if someone else accidentally or intentionally uses your seller’s permit or other license. And if you’ve been using a fictitious business name, you’ll need to file an abandonment form.
Of course, beyond the legal paperwork, you’ll need to properly work with any suppliers, customers, employees, lenders, bank accounts, service providers and other vendors to ensure a smooth closure.
Throughout the whole process, remember to take closing your business just as seriously as you did opening it. Your credit and reputation are at stake. By waiting till the last minute, you might find yourself in the unfortunate position of paying extra taxes, penalties, and other fees. There’s simply no reason to pay an extra cent in fees toward a business you know you’re retiring. Put that money towards your next venture instead!
Nellie Akalp is the CEO & Co-Founder of CorpNet Inc, her second incorporation filing service company based on the simple philosophy of truth in business and her strong passion to assist small business owners and entrepreneurs in getting their business off the ground in a fast, reliable, and affordable manner.
Just click on the video and we’ll take you right on over to CorpNet.
About Denise O'Berry
Oh Denise,
This advice is so important. I personally know of someone who did not file the proper paperwork, and simply wrote a letter to the state saying they had closed the business. They were very confused when they continued to be contacted for taxes and reports due.
Instead of filling out the necessary paperwork required, they continued to simply send a hand written letter reminding the state they had closed the business.
Long story short, the state does NOT recognize legal closure of a business unless the proper paperwork is filed. In this case, wages ended up being garnished, & huge fines and interest were charged. Don’t skip this crucial step in walking away from your business. Thanks so much for pointing this out. Hopefully it will save others a lot of money and heartbreak!
Grace — You are so right! Taking the proper steps is very important and you absolutely must follow the rules. This is a really good story you shared. Thanks so much for stopping by and adding to the discussion.
Great article. These websites are full of information, reports and guidance for small businesses. Outstanding!!!!!!!!!!!