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How to Close a Business?
The decision to close a business is not an easy one to make and is based on many factors like financial, your retirement, or starting a new venture or business. Closing a business is not that simple, and the process can take up to months. Failing to close a business properly can cause long term problems for you in the future.
Closing a business is a multi-stepped process based on the business structure. Separate guidelines are there for a corporation, LLC, or partnership. You need to have a checklist to ensure that the closing of your business goes smoothly, and also you can move away from the business in a free and clear way.
Checklist to Close a Business
1. Take a Vote
Even if you cease the operations of your company, the state will always see the company as fully operating, and you need to file returns, pay the taxes, and all the fees. All the members have to vote for closing the business. The record of the voting process is also to be kept in a file for future reference.
2. Dissolving a Corporation
Call for a board meeting and discuss on the dissolving of the corporation. The voting is to be done according to the corporate bylaws and requires a majority or two thirds to dissolve the corporation.
Dissolving LLC: A formal voting is required to dissolve the LLC. Follow all the procedures set during the incorporation of LLC to dissolve. Some agreements need the majority of votes, and some require the two-thirds majority.
Dissolving a Partnership: Most of the Partnerships do not have agreements, but it advisable to make one in case of emergency or to save the partners. In the situation of dissolving, the partner can give a letter or notice that he is leaving the company, and the partnership is dissolved.
3. Notify the Creditors
In case of closing a business, you need to send notice to the creditors stating that the business is going to shut down and they need to pay off the credits in the given period. But as per the rules, then creditors have 90 to 180 days to pay off the credit, but the exact deadline is decided according to the state law.
Even if the company is LLC or Partnership, it is necessary to send the creditors the notice of dissolution. To reduce the risk of any creditor going to sue you in the court, you could give the notice of dissolution in the newspaper. However, the creditors can sue you in the court to recover the outstanding debts, and the creditor has to file the case within three to ten years or asset in then state limitations.
4. Pay the Outstanding Taxes and Dues
It is essential that you inform the Internal Revenue System (IRS) about the closing the business and take care of all the taxes and dues needed to be paid. If you have employees, then be sure that all the salaries are paid and make the final payroll tax benefits make the final employment tax returns. Once all the taxes and dues are paid, the IRS will issue “consent for dissolution” certificate or tax clearance document. The document is required at the time of dissolution.
5. File the Articles of Dissolution
Articles of Dissolution will formally dissolve the business and sends a notice to the creditors that the company can no longer incur the debts. The paperwork should be completed before the state secretary of the business filing agency of the state where the business is running. The dissolution of a partnership can take up to 90 days. The demise of partnership ensures that no partner can incur debt on behalf of the corporation.
6. Negotiation with the Creditors
The corporation or LLC or partnership company should clear all the debts before going for the dissolution and closing the business. If the partnership company cannot pay the debts, then all the partners are liable for the debt and the creditors can also come after the properties of the partners to recover the debt. If the business cannot pay the debts, make an arrangement with the creditors or file bankruptcy. Once the debts are cleared, the partners can distribute the remaining assets as per the partnership agreement.
7. Complete the Final Paper Work
Before closing the business, make sure that you cancel all the licenses, permits issued in the name of your company. Notify the employee based health care provider and the insurance provider about the closing of the business. Pay all the dues and make a record of the receipts. Make arrangements to store the records. The records must be kept for about 7 years.
Conclusion
The closing of a business is not a painful process if you follow the checklist. The rules of closing change from state to state and failing to close the business properly can bring legal problems in the future. If you need to close a business and looking for expert advice, then contact Bizlic for more details. We can help businesses of all states. Get in touch with us for a free consultation.
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