Closing Your Business: What You Need to Do

So you've decided to close down your business. Maybe you're not making it financially, you don't have the time or will to manage it anymore, or you're moving on to the next "big thing." Whatever your reasons for closing your business, you'll need to take care of a few legal tasks before you officially close up shop.

These final tasks will help to protect yourself, your credit, and your reputation in the community, especially if you ever want to go into business again.

Five Crucial Steps to Closing Your Business

Here are the main steps you'll need to take to shut your business down legally and minimize the risk to your personal assets:

1. Vote to close the business.
2. File dissolution papers with your state.
3. Cancel permits, licenses, and fictitious business names.
4. Notify creditors, employees, and customers of your business closure.
5. Pay your taxes and debts.

These steps generally apply to every business. But your closing procedures will be specific to your business entity type and activities as well as the laws and rules of your state and company's organizational documents.

Let's look at these steps in more detail.

1. Vote to Close the Business

If you have been operating as a sole proprietor, you simply make the decision on your own—or with your spouse—and skip to the next step.

However, you'll need to follow an official procedure to vote to close your business if you run a:

• corporation
• limited liability company (LLC), or
• partnership.

This voting procedure can be found either in your state's business laws or in your company's organizational document (for example, your bylaws, operating agreement, or partnership agreement). Most states defer to a company's organizational documents. In those states, if your company doesn't have bylaws or an agreement, then you'll fall back on the state's business laws.

Usually, these rules require at least a majority of the owners to agree on dissolution. But your state's laws or organizational document could require a two-thirds or even unanimous vote. Alternatively, you might be allowed to dissolve your company by written consent instead of holding a vote.

Make sure you record your decision with a resolution in the minutes of a meeting or with a written consent form.

2. File Dissolution Papers With Your State

If you've been doing business as a corporation, LLC, or other registered entity, you'll need to officially dissolve your business so that you're no longer liable for business taxes or filings in your state. Officially dissolving your business also puts creditors on notice that your entity can no longer incur business debts.

You can usually find your state's dissolution forms on your secretary of state's website. Sometimes these forms are called "articles of dissolution" or a "certificate of dissolution" or a similar name. Sometimes these forms will ask you to fill in information about:

• how you and your co-owners elected to dissolve your business (for example, if by vote or written consent)
• whether your business has any remaining debts and liabilities (including taxes)
• whether your company's assets have been distributed, and
• when the dissolution will take effect.

Some states require you to obtain tax clearance (or a similar document) from your state's taxing authority before you can dissolve your business. This clearance simply states that your business has paid all its taxes and you don't have any outstanding taxes due.

You might need to file two forms to complete the dissolution and winding up process. For example, some states require you to file a dissolution form once you've voted to dissolve your company and a second form once you've wound up your company. Winding up your company typically consists of notifying creditors of your dissolution, paying off debts, and distributing any remaining assets. Other states might require some businesses to submit one document and some businesses to submit two documents depending on the business's activities or dissolution vote. You'll need to check your state's dissolution laws for specifics.

3. Cancel Permits, Licenses, and Fictitious Business Names

No matter what kind of business you have, you should cancel any kind of permit or license you hold with the state or county. Many businesses must get a license to generally operate in their city or state, collect sales tax, or conduct specific business activities. For example, bars and liquor stores typically need a liquor license and restaurants usually need a food preparation permit.

By canceling permits and licenses, your business generally won't be legally responsible for:

• annual or biennial fees
• reporting requirements
• special business taxes, or
• any other liability attached to your permit or license.

For instance, if you don't cancel your seller's permit, you could be responsible for end-of-year reporting requirements or minimum business taxes.

Fictitious or assumed business name (also called a "DBA"). If you filed a fictitious (or assumed) business name or DBA statement, you need to file a form for abandonment of the business name with the same agency. These statements are typically filed at the state, city, or county levels. Some agencies require you to also publish the abandonment in a local newspaper for several weeks.

Seller's permit or resale license. A seller's permit goes by many different names in different states, including a "resale certificate," "sales tax license," "wholesale license," or "sales tax ID number." If you hold one, contact the agency that issued it and ask for the form to cancel it. You'll likely need to pay all the sales tax due and file a final report when you cancel this license.

Business license. A business license is called a "tax registration" or "business tax certificate" in some areas. Depending on where your business is located, you might've obtained a license from your state, city, or county. To cancel your local business license or tax registration, contact your appropriate government agency for the cancellation form.

Professional and occupational licenses. Oftentimes, professional and occupational licenses are associated with the individual. If you close your business, you don't usually need to cancel your professional or occupational license. But if your license is associated with your business (such as a day care license or CPA firm), then you need to cancel the license that's specifically associated with your business.

Other permits and licenses. Contact the department or division that granted you the permit or license to cancel any other licenses.

4. Notify Creditors, Employees, and Customers of Your Business Closure

5. Pay Your Taxes And Other Debts

It's a good practice to pay your taxes first before paying any other debts. In general, taxes can't be forgiven (if say, you file for bankruptcy), and failing to pay your taxes can land you in serious trouble.

Paying Your Business Taxes

Your business could be responsible for income tax, employment tax, sales tax, and other business taxes. See our article on filing final tax returns when you go out of business for more in-depth guidance.