What You Need to Know to Close Your Business
You’ve invested a lot of effort, time, and money to start your small business and keep it running. So it’s understandably difficult to make the decision to close your business. But there are any number of valid reasons for making that tough call:
- You’ve failed to meet revenue projections for several years in a row
- You don’t feel excited or optimistic about the business or its prospects anymore
- You are dealing with health or family problems that make it difficult to devote sufficient time to keep the business running
- You can’t pay your bills or fulfill your orders
- You are unable to earn a living wage from the business despite several years of trying
Do any of those describe your situation? If so, here’s some advice on how to close the business legally and with the least amount of hassle.
Dismantling a corporation
If your business is incorporated, your corporate bylaws should include the process you need to follow to dissolve the corporation. In a corporation, the board of directors must pass a resolution to dissolve the business. To finalize the decision, the shareholders must vote to approve the resolution. A Certificate of Dissolution is then filed with the Secretary of State and reported to the IRS.
If you have more than 100 employees, you must give them a minimum of 60 days’ notice of the closing of your company. In some states, you must obtain a state and federal tax clearance by paying all back taxes.
All of your creditors must be notified in writing that the business is closing and they must have the opportunity to submit claims to be paid before you close. Generally, they are allowed 120 days to submit their claims. You can pay claims or negotiate a settlement for them. After the claims are paid, the remaining assets are distributed among the shareholders according to the bylaws.
Closing an LLC
To close your LLC, your board of directors or members must approve and then file Articles of Dissolution with your state. Next, you need to cancel all of your permits and licenses related to the business. You also need to close your EIN (Employer Identification Number) account with the IRS and contact your Secretary of State to cancel the use of the name you chose for your business.
You must also notify your creditors that you are closing the business and give them an opportunity to file their claims. If you can’t pay them in full, you can try to work out settlement agreements. Any assets that remain are distributed among the LLC members in accordance with the bylaws.
Ending a partnership or sole proprietorship
It’s less complicated to close a partnership or solo business than other business entities. Usually, no formal filing is necessary, although do make sure that you pay all of your bills. You can sell off your remaining assets and close your business bank accounts. Cancel any licenses or permits your business had. If you have a lease, you can try to negotiate with the landlord for an early release.