For one reason or another, it might be time to shut the doors on your business. Maybe you and a friend formed an LLC for an online venture a few years ago, but over the past year, you’ve both moved on. Maybe you launched a dog-walking business last year, then decided to get a full-time job instead.
Whatever the reason, you’ll need to formally close your LLC or corporation. Otherwise, you can still be charged fees associated with the business and still be required to submit tax returns to the IRS and submit an annual report to the state.
Closing your business isn’t complicated. If you’ve already stopped doing business and are 100 percent certain you’re retiring this business, it’s better to wrap things up before the start of the New Year. By dissolving your business in 2011, you’ll be free from any obligations in 2012 and have a clean slate to focus on whatever’s next.
Here’s how to formally close your business:
Dissolve your LLC or corporation
An LLC or corporation can be dissolved as easily as it’s created. If you’ve been doing business as a corporation, LLC or partnership, all business associates must vote to close the business and the final vote should be recorded in the meeting minutes. If shares have been issued in a corporation, two-thirds of the voting shares must agree to dissolve the company. If no shares were issued, your Board of Directors must approve the dissolution.
If you have an LLC, refer to the dissolution provisions in your state’s Limited Liability Company Act (known as LLCA). Every state statute has a different set of provisions; follow this statute to the letter to properly close the business and make sure all members of the LLC are not held liable for debts of the company after it’s been dissolved.
In essence, you’ll need to file an “Articles of Dissolution” or “Certificate of Termination” document with your state’s Secretary or State office.
Pay off any debts owed by the business
You’ll need to pay any outstanding debts of the company. Most states require the LLC or corporation to settle debts before any distributions are made to members. If your business does not have enough money to pay off all loans and debts, consult an attorney. In some cases, members can be personally liable for those debts after the business has been dissolved.
Distribute remaining assets to members
After debts have been paid, you should distribute the remaining assets and cash reserves to the owners/members in proportion to ownership interest.
Cancel permits, licenses, or fictitious business names (DBAs)
You should also cancel any kind of permit or licenses you hold with your state or county. There’s no reason to hold on to them, and you don’t want to be liable if someone else accidentally or intentionally uses your seller’s permit or other license. If you have been using a fictitious business name, you’ll need to file an abandonment form.
Notify the IRS
Notify the IRS that your business is no longer operating by shutting down the Employer Identification Number (EIN). You’ll also need to file your final federal and state tax returns (check the box indicating that this will be the final return). If applicable, your company’s payroll withholding taxes must be up-to-date (members can be held personally liable if payroll taxes aren’t paid).
Final words of advice
While closing a business is a fairly straightforward task, you should work with a legal document filing service or your attorney, since laws regarding corporate dissolution vary by state. These professionals can advise you on your state’s particular requirements and make sure your company is closed properly, and legally.
Remember to take closing your business just as seriously as you did opening it. Your credit and reputation are at stake. The longer you wait to formally dissolve a company, the more fees and paperwork will come your way. Don’t delay and good luck as you move on to bigger and better things!
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