How To Close a Business

You may decide to shut down your small business to retire, in response to financial hardship, or just because you want to do something else. Closing a business entity like a corporation, limited liability company (LLC), or partnership is not as simple as emptying the office and turning off the lights.

In addition to certain state tax and secretary of state procedures, you may also have to meet the requirements of your operating agreement, notify creditors, collect money owed to the business, and take other important steps. This article explains business closures, including everything you need to know to dissolve an LLC, steps for shutting down, and what to do if you're sued after your business closes.

Small business owners who close their businesses in a rush or in a haphazard manner create new problems, including liability issues that may not surface until much later. This article explains how to close a business, how to sell a business, and links to related articles.

Necessary Notice Needed To Dissolve Your Company

The structure of your company determines internal steps and notices you need to give before shutting down. State or local requirements may impact your process for closing a business as well.

• Sole proprietors encounter few issues when closing. It's just one person in the organization.
• General partnerships with no written partnership agreement need to give their partner(s) notice of their express desire to withdraw from the partnership. This notice to dissolve should be in writing. Keep a copy and be able to show proof of delivery by sending it through registered mail or delivering it by hand with a witness.
• If you are part of a partnership with a written partnership agreement, you must follow the steps in that agreement for notice.
• An LLC follows the rules in the operating agreement. If there isn't one, then state laws and statutes show what they must do.
• A corporation needs to follow the dissolution clause in the company's bylaws. If none exists, then state law prevails.

Timeline for Closing Down Your Business

There are certain key events to think about before you file your articles of dissolution. There is an order in which the events occur to properly close a business. State law determines these steps.

The following are steps that must be taken in the order they normally occur:

1. Vote to dissolve your entity. If you are an LLC, this is done through the voting members. If you are a corporation or nonprofit, then this is done through its board of directors.
2. Put a dissolution team together.
3. List business assets and take inventory.
4. Set a timetable.
5. Make the business closing announcement to staff, customers, or clients, and on social media.
6. Work out contracts and obligations that extend beyond your closing date.
7. Pay the last paychecks to your staff and team members.
8. Close the doors to the business.
9. Dispose of the remaining assets through sale or donation.
10. Notify your creditors, lenders, insurers, suppliers, vendors, and service providers to close accounts for the business.
11. Pay off the business debts, including credit cards, loans, and payroll taxes.
12. Prepare the final tax returns.
13. Cancel any relevant business licenses to prevent misuse.
14. File articles of dissolution (dissolution paperwork) with the state. You could elect to fail to file an annual report to be administratively dissolved. Still, you run the risk of continued legal liability. Even when you are not required to do so, as with most sole proprietorships, filing it places creditors on notice that the business cannot incur further debt. This relieves the company of future tax burdens.
15. Receive the certificate of dissolution.
16. Notifying the Internal Revenue Service (IRS) and state and local tax agencies of the dissolution of your business helps ensure that any tax issues are properly resolved when the company closes. Prepare final tax forms for federal, state, and local governments. This includes the final return with the state tax agency and the IRS for business taxes, employment tax, sales tax, and income tax.
17. Close the business bank account.
18. Keep all business records and other small business documents, including intellectual property transfers or assignments, for at least five years.

Selling a Business

Selling a business is not the same as dissolving a business. You may assign your interest in a business to someone else. The business may continue without you being involved in it. In that case, the business remains open with a transfer of ownership and change of members and agents on the Secretary of State's website.

The resources below can help you navigate the process of selling your business interest:

• Broker Listing Agreement
• Business Valuation Methods for When You're Ready to Sell
• Completing an Asset Sale
• Due Diligence Checklist - Being Acquired
• How and When to Sell a Business
• Sample Representations And Warranties
• Succession Planning for Small Businesses
• What Is Divestiture?
• What Is a Letter of Intent?
• What Is a Leveraged Buyout?

More on Closing Your Business

The resources below provide more detail on closing your business and potential legal issues you may encounter during the process:

• Being Sued After You Close Your Business
• Closing Down Your Business: a Chronology
• Closing a Business: Forms and Contracts
• Closing a Sole Proprietorship
• Dissolution and Winding Up Checklist
• Dissolving a Business: Terms You Should Know
• Forms: Notice And Articles Of Dissolution
• Managing a Business in Financial Distress Prior To Closing
• Meeting with a Lawyer: Closing a Business
• Necessary Steps To Dissolve Your Company
• Settlement and Distribution of Assets Checklist

Get Help From a Business Lawyer

If you need to close up shop, then make an appointment with a local business lawyer. You want to end your business correctly to prevent additional costs, headaches, and backlash. It's worth talking to a business lawyer to make sure you have all the details, especially on your tax return.