Business dissolution: How to close a business

 

Is it time to pull down the shutters on your business for the last time? It’s often difficult to decide to close your business, especially when you’ve worked hard to build it, but sometimes you need to make a clean break and move on to new ventures.

Whether you’ve decided that you need a fresh challenge or the economic conditions didn’t quite work out, there is no reason to feel bad about dissolving a business. One of the key features of agile and successful entrepreneurs is resilience and knowing when it’s time to move on.

For example, Milton Hershey, founder of Hershey’s chocolate, set up 3 different candy businesses and saw them all fail before he hit on Hershey and became a global success story.

The good news is that IncReg is here to take the pain out of closing your business so that you can focus on your next steps to success.

This page tells you everything you need to know about business dissolution.

Do you have to dissolve a business?

 

Usually, unless you have a sole proprietorship, you can’t just walk away from a business once you’ve established it and the state holds your Articles of Incorporation. That’s because, as far as the state is concerned, you will need to file a Certificate of Dissolution (also known as Articles of Dissolution) to cease business activities and end your obligations to the Secretary of State’s office.

It’s important to dissolve your business formally when you stop operating. If you don’t, you will still need to:

• File an annual report every year
• Pay applicable taxes on your business
• Keep up with any other reporting and compliance obligations imposed by your state

What’s more, if you leave your business active but dormant, your business can fall out of Good Standing. And that’s a problem because you need to be in Good Standing with your state to dissolve your business voluntarily and relieve yourself of those business obligations.

That’s why IncReg will help you wrap up and close your business with the minimum of hassle, the moment you instruct us to.

Types of businesses you can dissolve

 

If you have a Sole Proprietorship, you can just cease your business activities. There’s no need to inform your state that you have stopped trading. Of course, you will still need to settle your accounts and pay off your creditors.

With LLCs and all kinds of corporations, you’ll need to file a Certificate of Dissolution, but there’s a process you must go through before doing this. 

 

Voluntary and involuntary dissolution

 

If you choose to close a business and file your Certificate of Dissolution, then it’s known as “voluntary dissolution”. Following that, your legal obligation to the state has ended.

However, there are times when your business can be dissolved without the agreement of the members or directors. This can happen if you fail to file important reports with the state (such as your annual report), or if your business is in arrears with certain taxes.

For example, some states levy “privilege taxes” (or “franchise taxes”) on businesses that are imposed for the privilege of doing business in that state. The state may dissolve your business if it doesn’t pay them.

 

How to close a business in 5 steps

 

Assuming you are in Good Standing with your state, you are ready to start the process of closing your business.

 

1. Set up a meeting with the other members or the Board of Directors

 

If you’re in a multi-member LLC, or you have a corporation, then you’ll need everyone who’s tasked with decision-making to sign off on the business’s dissolution.

For corporations, you must make a record of the decision-making process you took and follow all the bylaws of your corporation before recording the final resolution to close. If you have an LLC, you must follow its operating agreement or your state’s regulations if it doesn’t have one.

2. Tell your creditors you are dissolving your business

 

Your creditors need to know that you are closing your business so that they can submit any claims for payment. The amount of time they have to do this varies by state, but it’s usually 3 to 6 months. Claims sent after this are too late for consideration, and you must establish this legal cut-off to protect yourself from future claims.

3. Pay your taxes

You should clear any outstanding state and federal tax obligations before you can close your business. It’s vital that you also remember to pay employment taxes, as the IRS can come after you personally for them, regardless of your limited liability protection.

4. File your Certificate of Dissolution

Next, get your Registered Agent to sign and complete the dissolution paperwork. Once they have done this, you can file your Certificate of Dissolution with the state and you are nearing the end of the process.

5. Notify the IRS that your business is closing

 

If the IRS is happy that you are up to date on your tax liabilities, it will issue you a tax clearance certificate.

Finally, give this to the Secretary of State’s office and your business is formally dissolved.

How to dissolve a business which operates in different states

 

You must file for dissolution in the state where you incorporated your business. Once you have done this, your business will be recorded as dissolved in any other states where it operates.

However, if your business has issued any licenses or has fictitious names, these must be closed separately.

 

What if you’re not in Good Standing?

 

It can seem unfair that a business that isn’t in good shape needs to be in Good Standing before it can enter voluntary dissolution.

Nevertheless, state laws mean you need Good Standing to begin the process. Often, the way back to this is to pay off any outstanding taxes and liabilities and ensure that any late or missing reports are filed.

Furthermore, ensuring that you can dissolve voluntarily is an important aspect of maintaining your good reputation as an entrepreneur.

Choose IncReg for your business dissolution

 

IncReg’s team of business experts are ready to take your call and make your business dissolution fast, painless and hassle-free.