Have you decided to close your business? It’s time to voluntarily dissolve your business of operation. The process starts with you filing articles of dissolution, and at that point, you will have taken the initial step to legally end the existence of your LLC or corporation.
It’s very important that you do
so, because otherwise you could accidentally leave yourself open to business fraud or business identity theft, both of which you’ll want to avoid. However, before you fully close down your
business, it’s important to notify shareholders or members, especially if they are part of the day-to-day operations of your business.
These individuals need to know the circumstances behind your intention to close your business, so make sure you keep them in the loop. It helps to document the date of your decision to close, and written documentation of involved parties’ approval is always beneficial.
Understand your tax responsibilities
Make sure you’re current on all the taxes that your company owes, including federal, state and local if applicable. To finalize your federal taxes, start by closing your tax account with the IRS. You can visit the IRS website to read through the official checklist for those who are closing their business.
There, you will find a list of the forms you must fill out as well as links that will direct you to all state and local requirements. Ensure that you have taken care of payroll matters, including withholdings. Check to see that your sales taxes are not only current but also accurate.
Then, close out your employer identification number. The EIN that was assigned to your business is your company’s permanent federal taxpayer identification number, so you don’t want this information to get into anyone else’s hands. In fact, your EIN will never be reused or reassigned to any other business entities, so even though you’re closing out your business, it will always be yours, and you can use it again in the future.
From there, submit a letter to the IRS detailing the complete legal name of your firm, the EIN, your business address and the reason you wish to close your account. You can also include a copy of the EIN assignment notice provided when your EIN was assigned.
After you take these steps, it’s time to file your final employment tax return. You’ll have to file a tax return at all three levels — federal, state and local — as well as pay all taxes that your business owes for that tax year. Once you complete these steps, reach out to your state government via dissolution papers and inform them that you have finished doing business.
Expect to pay a filing fee at this point. While many states charge anywhere from $20 to $60, there are some states that impose fees as high as $200, so it doesn’t hurt to look into your specific state’s fee in advance.
Consider what to pay and what to collect
Before you notify your customers of your intent to close up shop, make sure you collect any money that you are owed and tend to any outstanding accounts receivable. If need be, consider hosting a going-out-of-business event where you discount items and sell any remaining inventory. You could also try donating your inventory to charities in your area. Don’t forget that charitable donations are tax-deductible, too!
In accordance with your state’s laws, make sure you settle any outstanding debts that you owe to creditors. Make sure you’re prepared to close business-related bank accounts and credit card accounts that you opened for your company. To avoid fees, be ready to cancel any business licenses or permits when the time comes as well.
What happens if you contact creditors?
Provide the mailing address where creditors should send their claims, along with a list of the necessary information to include in the claim. Set a deadline for submitting claims — such as 120 days from your notice date — and make it clear that any claims that you do not receive by the deadline will be denied.
You never know — a creditor might agree to settle for a reduced amount, like 80% of the original claim! Once all business-related claims have been paid, the remaining assets can be distributed. For instance, if you own 80% of the business assets and your brother owns 20%, now would be the time to divide them accordingly between the two of you.
How should you notify your customers?
Before you talk to your customer base, discuss matters with your employees. Give them as much notice as possible, and finalize any severance packages as needed. You might need an employee to help you close the business, so consider offering a small bonus to someone you trust as an incentive for them to stay with your company until the last day of business arrives.
Tell your customers that you intend to close the business, and give them a date so they can make any last-minute purchases. Refund any deposits or payments for products that were not delivered or services that were not provided.
Then, you’ll need to end your commercial lease, but make sure you give your landlord the proper amount of notice as defined by your lease. In most cases, this timeline requires you to notify landlords at least 30 days before your lease ends.
Where to find additional information
If you are looking for more information about the process of ending your business operations, head on over to the official IRS website. Closing your business can be an understandably stressful time, but when you know what to do and what to expect, you’ll likely feel more empowered.
Don’t hesitate to consult with an accountant, tax adviser and/or business attorney who thoroughly understands the business closure process. Professionals can always help you ensure that you’ve met all the requirements.