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, there are a few legal tasks you need to undertake to protect yourself, your credit, and your reputation in the community, especially if you ever want to go into business again. 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. Dissolve your business with the government
3. Cancel permits, licenses, and fictious business names
4. Pay your taxes and debts
5. Notify your creditors, employees, and customers

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.

If you have been doing business as a corporation, limited liability company (LLC), or partnership, you and your business associates must agree to dissolve the entity by following either the procedures set out in your organizational documents or the rules set out in your state's business statutes. Usually, these rules require at least a majority of the owners to agree on dissolution, but they could require a two-third's or even unanimous vote. Dig up those documents to make sure you conduct the voting correctly, or check your state's corporation, limited liability company, or partnership statutes to find out what the rules are. You can get to most states' business statutes by visiting the Legal Research area of Nolo's website.

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

Dissolve Your Business With State and Local Government Offices

If you have been doing business as a corporation or limited liability company, you need to officially dissolve your entity so that you are 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.

Your state corporations or LLC unit -- usually a division of the secretary of state -- should have the necessary forms. For instance, a California corporation must submit to the California Secretary of State a "certificate of dissolution" and a "certificate of election to wind up and dissolve." These forms set out the disposition of your business's debts and liabilities, the distribution of your business assets, and how you and your co-shareholders elected to dissolve your business. LLCs have to file similar documents (sometimes called "articles of dissolution").

In some states, before you will be allowed to formally dissolve your business, you may also be required to obtain a "tax clearance" or "consent to dissolution" from your state tax board, declaring that all of your business taxes have been paid.

The rules and forms for dissolving a business entity (including information or links to the state tax board requirements) are usually posted on your state's secretary of state's website; you may have to look under FAQs for information. To find a link to your secretary of state's website, go to www.statelocalgov.net.

If you have been doing business as a partnership, you may need to file a dissolution form with the state, particularly if you filed paperwork with the state when you formed your partnership. (For instance, in California, if you filed a "statement of authority" with the Secretary of State when you formed your partnership, you must file a "certificate of dissolution" when you dissolve your partnership.) Required or not, it's a good idea to file dissolution paperwork if you can, to put creditors on notice that the partnership can no longer incur debts. This is especially important if you are involved in a general partnership, where any partner can usually bind the partnership to a deal and every partner is personally liable for all business debts.

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 -- you don't want anyone else to use your seller's permit or business name, for instance -- that could make you responsible for any taxes and penalties incurred after you no longer operate the business.

If you have a seller's permit or business license, contact the agency that issued the permit or license and cancel it. Likewise, if you've been using a fictitious or assumed business name, file an "abandonment" of the name and publish it in a local newspaper -- contact your county clerk's office for a form.

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