Close An Inactive Business Before the End of the Year

close an inactive businessNothing can sap your energy, finances, and relationships more than stubbornly sticking with a dead end project. Successful entrepreneurs know that one failed business hardly defines them. After all, the end of one venture often means the start of something new.

However, closing your business doesn’t just mean shutting down your website or storefront and calling it a day. You’ll need to formally close your LLC or Corporation. Otherwise, you can still be on the hook for filing your dead business’ annual reports, filing state/federal tax returns, and keeping up any business licenses.

All of these will take time and money – and savvy entrepreneurs don’t like to pay any more than they absolutely have to.

If you’ve already stopped doing business and are 100% certain you’re retiring this business, it’s better to wrap things up before the start of the New Year. By dissolving your business while it’s still 2012, you’ll be free from any obligations in 2013 and have a clean slate to focus on whatever’s next.

Follow these steps to close your business the right way:

1. Dissolve the Legal Entity (LLC or Corporation)

If your business is operating as an LLC or Corporation, you’ll need to formally dissolve the legal entity. This entails a few things:

  • All business associates need to vote on closing the business. If shares were issued in a Corporation, two-thirds of the voting shares need to agree to dissolve the company. If no shares were issued, then you need the approval of the Board of Directors. Recorded the final vote in the meeting minutes.
  • If you’re operating as an LLC, realize that specific rules vary by states and you should review the dissolution requirements in your state’s Limited Liability Company Act.
  • After the vote, you’ll need to file an “Articles of Dissolution” or “Certificate of Termination” with the Secretary of State’s office wherever your LLC or Corporation was established.

2. Meet any of Your Obligations (i.e. Pay Your Bills)

All company debts must be satisfied in order to properly close your business. In most cases, an LLC or Corp needs to settle its debts before any money or assets can be legally distributed to the members. If your business doesn’t have the resources to pay its debts, talk with an attorney to determine the best course of action.

3. Cancel Your Business Licenses and Permits

Contact the county where your business is located and cancel your business license, as well as your seller’s permit or any other permits you hold. Be active about cancelling these things, because you could still be assessed fees and taxes if the county doesn’t know your business is no longer in operation.

4. Close your Business’ Federal and State Tax Accounts

Maybe your business isn’t making any money anymore; this alone doesn’t mean you’re done with the IRS. You’ll need to close your Employer Identification Number (EIN), as well as file final federal and state tax returns. You can make your return “final” by checking the box indicating that this will be the final return.

If applicable, you’ll need to make sure your company’s payroll withholding taxes are current. Otherwise, you (or other members/owners) may be personally liable for any unpaid payroll taxes.

5. Talk to Your Network of Vendors and Contractors

You’ve probably already discussed shutting down your business with any customers or clients (or maybe your inactive business hasn’t had a client in months or years!). You should also talk to any contractors, vendors, freelancers, suppliers, or anyone else that has participated or helped you in your business. Don’t just go dark and make them wonder why they haven’t heard from you in months.

While this particular business may be closing, you’ve built up a valuable network of business resources that you can leverage for your next project. By being considerate and open with your network, people will be more eager to join you for future businesses.

Final Thoughts

Walking away from a business is never an easy decision. However, closing a poorly performing company can free you for the next big thing.

Be sure to close your business just as carefully as you opened it. Otherwise, you can be on the hook for added fees and obligations.

Locked Door Photo via Shutterstock

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Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

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