Closing your business is a process that, while different depending on your state and business structure, doesn’t always have to be a troublesome task. By following a general step-by-step outline, you can formulate your closing plan ahead of time and go into your closure with insight about the process to come.
Make a formal decision
Before closure, you and all co-owners will need to come to a formal agreement compliant with any dissolution plans. While the following are general rules of thumb, it’s important to follow the articles of your unique dissolution plan and document discussion and decisions with a final written agreement. If your business doesn’t have a dissolution plan ready, you can follow the procedures from your state’s business statutes.
Dissolving an LLC will need to be done via a formal vote by its members, which will need to pass by the two-thirds majority. Some agreements may require a unanimous vote, so be sure to consult your agreement.
A C-Corp or S-Corp's dissolution will require a director's meeting in order to take a vote on the decision to close down the business. Typically, the vote will have to pass by the majority, or two-thirds, to reach a final agreement.
To end a partnership, one partner will need to give written notice to the other partner that they will be leaving. If there is a partnership agreement in place, make sure to follow any dissolution procedures going forward.
Sole proprietorships can decide to close their business on their own accord.
Create a communication strategy
During a business closure, communication is critical. By planning an exit strategy
Informing employees about the upcoming shutdown is a sensitive and time-critical subject. Have a plan in place to communicate the announcement to your employees before they hear the news from anyone else.
When dealing with final employee payments, it is important to comply with employment and labor laws. The details of when checks must be issued will vary state-to-state but the Worker Adjustment and Retraining Notification Act (WARN) is a good point of reference.
Communicating the closing news to your customers will alert clients that it's time to finish up any outstanding business, and potentially allow you to get some final business. To spread the news efficiently and on a broad scale, it can be beneficial to utilize platforms such as social media while issuing an official press release.
File Articles of Dissolution
To formally dissolve, you must file Articles of Dissolution, also called a Certificate of Dissolution, with every state you’re registered to do business in. This should be filed with each state’s Secretary of State and will keep you from continuing tax requirements while letting creditors know that your business can no longer incur further debt.
Sell your assets
If you have a large amount of stock that you are having trouble getting rid of, an inventory liquidator can be of good help. companies buy excess inventory for a percentage of its worth.
You may also be in the position where you need to file for bankruptcy and liquidate assets. If so, it is crucial to consult with a lawyer or accountant to develop the best plan of action for liquidation.
Settle your final finances
Closing down your business can come with a large number of forms and financial implications. Filing these correctly is essential to the correct closure of your business and to resolve you from any future business taxation.
Filing your final tax forms as a business is a crucial part of your closing process, and will vary depending on your business structure.
LLCs and Partnerships
File Form 1065 and check off the “Final Return” box. If your business if a partnership, you will also need to report your distributed profits and losses on Schedule K-1.
This is by April 15 the year after your business closes.
Fill out Schedule C. There will be no “Final Return” box to indicate the final return status.
This is due by April 15 the year after your business closes.
File Form 1120, and check off the "Final Return" box. As with Partnerships, you will need to report shareholder distributions on Schedule K-1. You’ll also need file Form 966 in order to dissolve your corporation.
Both of these forms are due 2 months and 15 days after your business closes.
Once all of your taxes are paid, you must request a “consent to dissolution” a “tax clearance” document from the IRS.
Notify federal and state tax agencies of your closure and cancel your Employer Identification Number (EIN) in order to finish your tax tasks.
Even if you are closing your business, you will still need to pay any outstanding debts. Inform your creditors that you’re closing by sending a letter.
Creditors have a time limit for filing a claim against you for unpaid debts, typically between 90 and 180 days after notice. The exact amount of time will depend on the statute of limitations according to your state.
Cancel your business accounts
In order to protect your finances and information, cancel all of the accounts that you won’t need. This includes your trade name, registration, permit, licenses, credit cards, bank accounts, utilities, insurance, and employee-based healthcare.
Failing to do so can lead to serious consequences such as identity theft or ongoing liabilities that should not be responsible for.
File away your records
Keeping records of all paperwork is always a wise idea, but in some states, you may be legally required to keep your closed business's tax and employment records.
These records should be kept on file from three to seven years.
The decision to close your business is not an easy one, or one that you always have to make on your own. It’s wise to consider getting professional help from an accountant, CPA, or tax professional who is familiar with the financial and tax implications of business closures.
Failing to properly shut down your business can leave you with consequences lasting long after the closure. Consulting with a professional can help you make sure that you finish up all of your obligations and are not held financially liable before shutting the door.