Do You Need a Lawyer To Close a Business?

There are no legal requirements to have an attorney when you close your business. However, there are compelling reasons to use one to help wind up your affairs and handle the legal filings associated with ending a business entity. Tasks may include notifying the Secretary of State, filing articles of dissolution, informing creditors that you are no longer in business, issuing final paychecks, and filing tax returns.

Having an attorney nearby to answer questions and explain what goes into a business dissolution can be the safest way to shut down your business and avoid personal liability. Even if you ultimately decide to handle it yourself, meeting with a business attorney about your shutdown is a good idea.

Steps for Closing a Business

Assuming all partners and officers agree, you can begin the legal paperwork involved with closing your business. If you have bylaws or an operating agreement, follow the provisions. For disagreements among owners, it may be time to bring in an attorney. Review the steps for dissolving a business before deciding whether you need an attorney’s help.

If you filed Articles of Incorporation, Articles of Organization, or Certificate of Limited Partnership when you began your business, you will need to file Articles of Dissolution to end it. This lets the Secretary of State know that you are no longer in business. Businesses affected by this are:

• Limited partnerships and Limited liability partnerships
• Limited liability companies (LLCs)
• Corporations

You may need to file annual reports and get a tax clearance from the state before getting a certificate of dissolution.

Sole proprietorships or general partnerships were never formal business entities. If you were one of these, you don’t have to file any dissolution paperwork with the state.

Next, review whether you have other responsibilities besides filing dissolution documents. These can include:

• Notifying the IRS
• Paying final income and payroll taxes under your employer identification number (EIN)
• Paying all business debts
• Terminating all outstanding contracts with service providers and settling other financial obligations
• Paying final paychecks according to state laws
• Disposing of remaining assets and business property

All of these tasks should be handled properly to avoid any liability coming back to you. If things seem to be getting complicated, it might be time to speak with a business attorney.

When To Consider Having an Attorney During a Business Closure

Shutting down a business is rarely a delightful experience. An attorney can help you if any or all of these factors apply in your case:

• Outstanding debts with creditors or lenders: You must notify creditors, lenders, and lien-holders of your intent to dissolve the business. In some cases, you may need to arrange payment of debts before you can close the business.
• Outstanding orders or contracts: You can’t walk away from certain requirements or contracts if the buyer cannot easily obtain the goods elsewhere. This may entail giving them time to find a new supplier.
• Terminating other contracts and leases
• Buy-outs or sales as part of an operating agreement
• Employees: Having employees can greatly complicate a business closing

If you have more than 100 full-time employees, the Worker Adjustment and Retraining Notification Act (WARN) may apply before you can close the business. The WARN Act requires at least 60 calendar days of advance written notice before a business can shut down, giving workers time to search for new employment.

In all states, employees have the right to receive their final paycheck within a certain period, which may be as soon as the same day or the next business day. If your workers have health insurance, they must be given the option to continue coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Any of these can come back to bite you if neglected. If you’re not 100% sure you’ve covered every base, consider getting legal advice before shuttering your company.

What Are the Risks of Closing a Business Without an Attorney?

Not having an attorney when you close down can save money at the time. However, you risk missing something and exposing yourself to trouble months or years after you lock the doors.

Personal Liability

Business owners usually form limited partnerships, LLCs, and corporations to protect their assets from business creditors. A formal dissolution, like a bankruptcy, gives creditors notice of the impending closure. Outstanding creditors can make claims and request payment before the business closes. Without proper business dissolution, creditors can sue you despite the company having technically disappeared.

Tax Issues

Your final tax return is part of closing up the business. Some states require a final tax return before you complete the dissolution process. The IRS wants your final taxes after your business has closed operations and everyone has been paid. If you fail to file your last set of taxes properly, the IRS can come after you and your former partners for any penalties and back taxes.

Future Lawsuits

You can be sued months or years after you close your business. Former creditors, ex-employees, and past landlords can all seek relief if you didn’t wind down your business and pay everyone according to legal requirements. Even if your oversight was accidental, that doesn’t mean you can’t face legal action.

Ongoing Tax and License Fees

Business licenses and permits can linger for years after your business closes unless you cancel business licenses. When dissolving your business, contact the Secretary of State’s office, state or county business license office, and local city offices to terminate business licenses and tax accounts. If you have a DBA, fictitious name, or trade name, you must file a Statement of Trade Name Withdrawal or Fictitious Business Name Abandonment.

How a Lawyer Helps With Business Closure

When it’s time to shut down the business and distribute remaining assets, you and your partners need someone to help with the legal paperwork. The attorney will need to sit down with all your documentation in one place and assemble a dissolution file, much like you assembled a start-up file when it was time to begin operations. There are other concerns to be tended to as well:

• In formal dissolutions, corporations, limited partnerships, and LLCs must formally vote on and file “Articles of Dissolution” with the Secretary of State. This is an official document that tells the state you’re no longer in business. Any claims or requests about your company will receive a notice that you have ceased operations. A lawyer can prepare and file documentation and assist with tax clearances.
• Government notification requires notifying the IRS, the state franchise tax board (and state tax number if different), and other state boards. Your attorney will have a list of who to notify and how to do it properly.
• If you have more than 100 employees, you must notify employees according to the WARN Act. Your attorney will know how to draft the notification and how to present it to employees.
• Financial obligations surrounding a dissolution are complicated. You must pay final taxes, payroll, and creditors according to a set financial schedule. Your attorney will explain how assets can be sold and distributed under state law.
• Final winding down operations may include terminating any leases, canceling and settling contracts, and liquidating your remaining inventory. At this stage, an attorney is invaluable in settling your final debts and negotiating remaining debts with your creditors.

The owners are the last ones to get paid once everything is settled. Your attorney’s help will ensure all steps have been taken to complete your business closure.

How To Prepare for Your Meeting with a Business Attorney

When you meet with your attorney to dissolve your business, being prepared is a huge help for all involved. Have all your business records in one place before sitting down and discussing how to close the business.

You will need:

• Business formation documents: Articles of Incorporation, Partnership agreements, operating agreements, any changes made to your agreements over the years
• Financial records: The last four years’ tax returns, a list of business debts and assets, business bank account(s), business credit card statements, payroll, etc.
• Operating information: Leases, major contracts, accounts receivable, employee lists, equipment rentals, and so on
• ID information: EIN, state and local business licenses, sales tax numbers, operating licenses, operating permits, anything you pay a fee for

Dissolving a business is very similar to filing for bankruptcy. Having everything required close at hand can make it as painless as possible.

Closing Your Business? Speak With an Attorney

Closing your business isn’t as simple as flipping the switch and walking away. Even an honest mistake can result in liability long after the business has closed down. Give yourself the peace of mind by consulting a business and commercial law attorney to help you close your business legally, safely, and permanently.