Closing a business is often a difficult and complicated choice to make. Usually the decision to close has little to do with the financial performance, and more to do with a change in ownership or the death or injury of a key owner. Regardless of the reason, it’s helpful to follow a systematic dissolution strategy whenever possible. Here are some steps to include as you prepare your plan:
Dissolving a business can be a stressful and fragile process. The best place to start is by creating a buy sell agreement long before you get to the end. By agreeing beforehand, many future problems can be avoided. If your business does not have a written agreement, get help from competent professionals (including attorneys, bankers and others) to iron out the details.
A sole proprietor may only need to consult with a spouse or trusted advisor. With a partnership, corporation or limited liability company, more than one business associate must agree to the dissolution. Organizational documents or a state’s business statutes often mandates the level of agreement required (a simple majority or two-third’s majority, for example), so you’ll want to consult applicable rules.
Let your state and local governments know that the company is ceasing operations. The forms you need should be posted on your secretary of state’s website. Especially when a partnership or corporation is dissolved, formal filings should prevent future confusion about ownership and liabilities.
Most businesses are required to obtain city, county and/or state licenses to operate. The appropriate agencies must be notified of the dissolution. Insurance brokers should also be told to cancel business liability, health care and other company policies.
Even if the business only operates for a portion of the year, you’ll need to notify the IRS that the company’s annual tax return is its last one.
You’ll need to inform lenders, suppliers, service providers and customers. Lenders will be eager to find out how you plan to repay loans. Suppliers will want to know when to make final deliveries. Utility companies will need to know when to turn out the lights and shut off the water. Customers should also be given plenty of notice about final orders and ongoing projects.
These important steps will help effectively move along your shutdown process. If you have questions about preparing your business, call today.
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