How to Close Your Business

Running your own business is an incredibly rewarding experience. It can also be challenging, exhausting, and frustrating. There are plenty of reasons why you might want to wind down your business. You might be ready to retire or to move on to another business, or it could be a result of disappointment and stress. Whatever the reason, make sure that you’re going about it in the right way to avoid complications in the future. Here are the six steps that small business owners need to follow in order to formally close their businesses in a way that is responsible to their clients, their employees, their vendors, and their legal obligations.

• The first step for any business owner outside of sole proprietors is to hold a meeting with partners or other stakeholders such as a board of directors to make sure that everybody – or at least a majority — is on board with the business’ closure. 

• After a majority vote for dissolution has been achieved, businesses such as corporations or LLCs will need to file all appropriate paperwork to formally dissolve the business. Called articles of dissolution, the information in the application will include the business name and reason for dissolution, the date that the dissolution will take effect, and information on any pending litigation that the business is facing. Businesses that are registered in multiple states will need to file this paperwork in each one to make sure that all obligations for state fees and filing of annual reports are eliminated, and those that are incorporated will need to complete and file Form 966 with the IRS within 30 days of filing their articles of dissolution.

• If you have any employees, you have a responsibility to ensure that they both know that you are closing with as much time as possible and to make sure that all of their final wages are paid in a timely way. Provide them with a date certain for receiving that check, make sure that you have reported all appropriate tax papers for final wage payments (using Form 941 or 944), preparing and provide a W-2 specific to the year that they were last paid as well as a Form 8027 for employees who receive tips, are all important to make sure that they have the information that they need to move forward without complications.

• Address all tax liabilities. This includes filing the last return and paying any tax obligation that the business may have.

• If your business had employees and filed for an employer identification number (EIN), it’s a good idea to contact the IRS to cancel it. Though it is important to establish a financial account on behalf of your business and hiring and paying employees, it can become a liability after the business has been closed. The same is true for any other identifying numbers, permits, and business licenses associated with the business.

• Make sure that any other debts that the business has accrued have been paid in full before distributing the remaining assets to stakeholders. This includes leases, loans, and invoices. You should also ensure that any service agreements or ongoing purchase orders have been canceled so that no additional debt piles up.

Closing your business can be an uplifting experience that frees you up for your next venture, or it may signal a sad or disappointing ending. Either way, you should be proud of having pursued your dream of entrepreneurship, as many spend their lives thinking about it and never moving forward to pursue it. 

 

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All Articles by Jon Osborn, Enrolled Agent