There are many reasons business owners close shop (winding down), including retirement, starting a new venture or, hopefully, because they’ve won the lottery. No matter what the reason, it’s important to diligently wind down a business before moving on.
Here are five steps to take:
1. Reach Consensus
If you’re a sole proprietor, then the only consensus you need is your own. However, if you’re a partnership, limited liability company (LLC), or corporation, you’ll have to reach a consensus with your business partners on how and when to dissolve. Make sure that everything is in writing (this cannot be stressed enough) and follows whatever guidelines apply to your articles of incorporation, bylaws, and other organizational documents.
2. Seek Counsel
Just as you would seek experienced counsel when starting a business, do the same when shutting one down. Dissolution is a multi-tiered process. Everything must be identified, addressed, and resolved. This includes canceling licenses and permits, and filing legal and tax documents with courts, creditors, and government authorities.
3. Comply With Laws
State law will generally require dissolving businesses to pay employees for any work performed until the closing date and for any unused vacation, sick, or personal time. State law will also govern possible notice provisions under the Worker Adjustment and Retraining Notification Act (WARN) which requires at least 60 days advance notice to those who work for companies with 100 employees.
4. Resolve Financial Obligations
All businesses’ financial obligations need to be resolved before dissolving. Those include:
- Business taxes. When you file income tax returns for the year in which your business closes, check the box that indicates the document is a “final” return. Many state revenue agencies require additional filings for sales tax as well.
- Payroll taxes. If you have employees, you must satisfy your payroll tax responsibilities or you will risk personal liability. Inform your federal and state tax agencies that your business is closing and that you will cease to file unemployment returns and an employer’s quarterly tax form.
- EIN accounts. Businesses should close their Employer Identification Number (EIN) account by contacting the IRS. The IRS cannot cancel your account, but closing your EIN account notifies the IRS you are not planning to use the number.
- Business debts. Notify creditors of your plans to dissolve the business, contact business associates to whom you owe money, and settle all accounts.
5. Maintain Records
Although your business may be dissolved, you may be legally required to maintain records for some years depending upon the federal and state law.
Whether dissolving your business is a happy or sad occasion, it should be handled thoroughly. Failing to wrap up all loose ends can lead to years of frustration and possible litigation with former employees, vendors, and partners. We’d be happy to help you wrap things up and move on to your next venture.
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