It can be tempting just to close your doors and walk away, but closing a business takes a bit of planning. Taking the right steps can avoid unnecessary costs and prevent legal disputes from arising.
Here are the basic steps for closing down a business:
Make the decision to close. Follow the procedure in your partnership agreement, articles of organization or articles of incorporation. Co-owners must agree.
Collect final receivables. Make your collection attempts before announcing that you’re planning to close. Some debtors may assume that they no longer owe you since the business is closing. If you cannot collect, consider selling your debts to a collection agency.
Legally dissolve the company. If you do not legally dissolve the company, you could continue to owe taxes and annual fees, if applicable. Go to the secretary of state in the state you are registered in and close down.
Cancel permits, licenses, registrations and business names, including your trade name. Doing this will prevent costly renewals and protect your reputation.
Notify employees. Comply with all federal and state employment and labor laws. If you will be laying off a significant number of employees, ask your business attorney about whether you must comply with the federal Worker Adjustment and Retraining Notification (WARN) Act.
Notify creditors and pay final debts. Send letters to each creditor and ask for a final bill. Note that your bank may deduct your loan balance from your company’s bank account as soon as you notify it that you’re closing.
Close out your taxes. File your final income and sales tax returns. Cancel your Employer Identification Number. Notify your state tax agency and the IRS. Here is a quick checklist of possible final tax duties:
- Make your final federal tax deposit
- File a final employment tax form (quarterly or annual)
- Issue final W-2s to employees
- Report on the W-2s using form W-3
- Report any capital gains or losses
- Report partners’ or shareholders’ shares
- File Form 5500, final employee pension/benefit plan report
- Issue payment information to sub-contractors
- Report Form 1096, annual summary of 1099s
- Report the sale of any business assets
- Report the dissolution or liquidation of your company
- If an S-corporation, consider allowing your election to terminate
- Report the sale or exchange of property used in your business or trade
Maintain legally required records. Your taxes and employment files, among others, should be kept for three to seven years.
Distribute any remaining assets or cash to owners. Do not do this until you’re sure you have paid off all your business debts and taxes.
This can all seem somewhat daunting. It is all necessary, however. If you need assistance, get help from your business attorney at Leigh Law Group.