How do I dissolve my business?
Properly dissolving your business is crucial to limit ongoing liabilities. Key steps include:
- Formally notifying the Secretary of State’s Office in each state where your business operates.
- Informing the IRS and state tax authorities.
- Notifying licensing agencies as applicable.
You will need to file formal Articles of Dissolution with the relevant state authorities and pay any associated fees. If your business has multiple owners, drafting a formal resolution is essential. This document formally approves the decision to close and authorizes the necessary steps for dissolution. Don’t forget to cancel business licenses, permits, and trade names.
What should I do with assets when closing a business?
Unfortunately, sometimes there are more debts than assets when it's time to close a business. List your business creditors, including:
- Bank(s).
- Landlords.
- Utility companies.
- Suppliers
- Third-party service providers
- Employees.
f your business has sufficient assets to meet all obligations, then pay your outstanding bills and ask creditors for 'paid in full' letters to document you have satisfied your accounts. Don't forget to include business tax obligations not yet paid. Consider paying employees in full on their last day of working for you (this may be mandatory in some states). After paying for costs associated with dissolution and outstanding debts, remaining assets should be divided by the business shareholders or members as provided in the shareholder or member agreement.
If your business does not have sufficient assets to satisfy all of its obligations, reach out to creditors about settling your accounts with them. Understand that if you are not able to pay your creditors in full, they may file claims against you for payment. The window of time for filing claims and circumstances around such claims are defined by each state's laws. In some cases, it may make sense to file for business bankruptcy protection.
How do I tell my staff I'm closing the business?
There is never an easy way to tell employees that you have made the difficult decision to close your business. If possible, give your employees some notice. It is also important to understand and comply with all applicable local, state, and federal employment and labor laws.
Business consultants recommend being as honest and straightforward with staff as possible, explaining the reason you need to close the company. Plan your communication as carefully as you can and anticipate questions from workers about what the decision means for them. Employees will likely need guidance when it comes to what to tell customers, when and how they will be paid, and whether you will be able to offer any assistance as they search for new roles.
How do I report closing a business?
Report your business closure by contacting your state's Secretary of State or other business authority, as discussed more fully above. You will need to take this step in every state where your company is registered to conduct business. The good news is that in most states, dissolution forms can be filed electronically.
The IRS website provides resources for small business owners who are closing their doors for good, including forms used to report asset sales and transfers. If your business was required to file separate tax returns, you will need to file a final return by April 15 of the year after you have ceased operations.
What other things should I do when closing a business?
If you have customers who have not yet paid for goods or services provided, make attempts to collect on their accounts before you officially close your business and distribute its remaining assets. Some business owners find it is easier to collect on outstanding debts by calling customers rather than sending letters. In some cases, it may make sense to offer a discount for paying immediately. Try to collect on debts before notifying customers your business is closing, as doing so will likely increase your chances of collecting.
You will also need to cancel your company's online presence, including:
- Websites
- Social media profiles/accounts
- Business referral services
- Search engine listings
Taking a deliberate approach to removing pages and listings with each site or service provider can ensure you capture all of them.
Seek legal guidance when needed for a smooth dissolution
Closing a business is rarely simple, but careful planning can help avoid future liabilities. Consulting with a legal or tax professional is highly recommended to ensure all necessary steps are completed properly. Rocket Lawyer offers comprehensive help to guide you through the dissolution process and prepare for your next chapter with confidence. Reach out to a Rocket Legal Pro for affordable legal advice, or get matched with a tax pro through Rocket Tax™ and leave taxes to a pro.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
