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Settlement and Distribution of Business Assets

Small businesses must follow the same procedures as larger companies when closing down. State and federal laws demand disclosures from small business owners about their taxes, dividend distributions, and final accounting. Depending on your business structure, you may need to file more documents showing you have officially closed your business, sold company assets, and contacted creditors and vendors.

The Internal Revenue Service (IRS) and state tax departments must get your final tax returns. You need to file a certificate of cancellation if you incorporated, and you'll need to cancel your fictitious business name or DBA if you had one. There's much more to dissolving a company than just closing the doors one last time.

See FindLaw's Closing a Business section to learn more about the process.

Sole Proprietorships

Even a sole proprietorship has a few things to do. A sole proprietor can avoid some of the state filings and tax requirements. You should still ensure you've finished all your business obligations.

  • Complete all outstanding contracts. Settle any business deals that you can't finish before your closing date.
  • Notify customers and creditors of your closing date.
  • Pay off all outstanding loans and debts. You may want to consult an attorney to settle unpaid debts; otherwise, you will be personally liable for repayment.
  • Arrange liquidation of any business property you won't keep. Use the money from the sales to pay your business debts.
  • File and pay your final business taxes. The IRS and most states want your final business tax when your business closes. The IRS has a special form for final taxes; your state may have a similar one.
  • If you've been using a separate business bank account, cancel the account.
  • Cancel any state or federal licenses and permits. This includes fictitious business names and dbas. Check with your state and county clerk's office for the correct forms.
  • Remember to cancel any business subscriptions. If your office had a cable subscription or used an online service, it's easy to forget those until you get a bill a month after the business closes.

Wrapping up a sole proprietorship is deceptively easy. Make sure you've done it right the first time.


If you had a partnership agreement, it should have included a method of dissolution. If it did, you must follow the agreement. If not, check your state's requirements. Some states, such as California, have specific forms you must use and submit to the secretary of state. The steps for dissolving a partnership are like that of a sole proprietorship.

  • Partners must agree to the dissolution or end of the partnership. If you had a method of agreement, such as a vote, you should do that. The Uniform Partnership Act (UPA) allows dissolutions when a partner leaves, dies, gets forced out by other partners, or when the partnership must close due to bankruptcy or court order.
  • Write an asset distribution agreement. You should also assign responsibilities for the remaining stages of the dissolution. An attorney or mediator can help if partners cannot agree on asset division. Property and assets have the fair market value shown in the balance sheet in the last month before dissolution.
  • File a certificate of cancellation or withdrawal. The correct document depends on your state and the type of partnership. A general partnership (GP) may not need to file any documents. A limited partnership (LP) may need to file a cancellation or withdrawal.
  • Pay your taxes. Partnerships must file federal taxes with a particular IRS tax form, like sole proprietorships. Check with your state franchise tax board to determine if you need state tax forms when winding up your partnership.
  • Notify all creditors and business associates.
  • Liquidate all business assets. Your company assets may include any property bought by the partnership, office or mechanical equipment, or even furniture.
  • Pay off any outstanding debts and loans. This includes leases on property and equipment.
  • Cancel all licenses, permits, and bank accounts. Remember to cancel business subscriptions and services. Ask your insurance agent if you should get extended coverage for your liability insurance.
  • Partners get the remaining assets according to the original partnership agreement or according to the UPA.

Any debts or liabilities left once the partnership ends will be the personal responsibility of each partner. It's in everyone's interest to pay off or settle all outstanding debts with your asset sale. You should keep some funds in reserve to cover any post-dissolution contingencies, such as legal action by creditors.


Corporate dissolutions are more complicated than partnerships or sole proprietorships. State and federal laws define "corporate entities" and corporate business activities. Corporations must have a board of directors, and the board must vote to dissolve the company. In most states, the shareholders must also vote to dissolve the company. Without these votes, you can't dissolve the company. Before closing your corporation, ensure you're following all your state regulations. You may need a business attorney to ensure you've done things right.

  • File the articles of dissolution with your state's secretary of state. As with the articles of incorporation filed to open your company, there is a fee to close your company. Each state has its own articles or certificate of dissolution form.
  • Pay taxes due to the IRS and state. State law may demand you pay your state taxes before you can dissolve the corporation. In others, you can file after. Check with your attorney or the franchise tax board.
  • Notify your creditors of the impending dissolution. Some states may need notice by publication to allow unknown creditors to file a claim. States usually have a deadline of 60-180 days for creditors to file claims.
  • Liquidate corporate assets. If you can do this before your taxes are due, you can use the income for tax payments. You should try to sell all business assets, including real estate, company vehicles, equipment and fixtures, and furniture.
  • Pay all outstanding debts and loans. Shareholders and corporate officers aren't liable for corporate debts, but directors and owners may be. Creditors can sometimes prevent a business from closing if they believe the owners are trying to close down to avoid paying debts.
  • Set aside a contingency fund for taxes or other liabilities arising after the dissolution. You should talk with an attorney about statutes of limitation on product liability claims customers can bring against your company.
  • Distribute any remaining assets to shareholders. Do this according to their ownership percentage and the articles of incorporation.

Because there are so many state and federal regulations about shutting down a corporation, you should consult an attorney during your dissolution to ensure you haven't missed any steps.

Limited Liability Companies

Closing a limited liability company (LLC) is like closing down a corporation. One important difference has to do with paying taxes. An LLC is a state-level organization and does not have an IRS tax schedule. The IRS taxes LLCs as:

  • C-corporations (c-corps). This is the default if a company incorporates, but an LLC must choose between an S-corp and a C-corp. A C-corp is easier to form and has unlimited shareholder ownership. But, C-corps pay corporate income tax and dividend income taxes.
  • S-corporations (s-corps). An S-corp has limited ownership, but pass-through losses allow shareholders to write taxes off as business losses. But, the IRS tightly monitors S-corps.

The IRS treats LLCs that have not chosen c-corp or s-corp in their initial filing as partnerships. LLC members should treat winding down their company like winding down any other company.

Get Legal Help When Closing Your Business

Closing down a business is more complex than locking the door one last time. You should speak with an attorney before walking away. Find a business and commercial law attorney in your area for legal help.

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