Starting and growing a business can be challenging. But making the decision to close a business can be immensely stressful and demoralizing. For many entrepreneurs, the choice to dissolve their companies happens because they’re losing too much money or the businesses aren’t profitable enough to justify the owners’ time and energy. I’ve even known former business owners who simply discovered being their own bosses isn’t what they thought it would be, and they opted to close their companies because their hearts just weren’t into them.
Regardless of the reason to dissolve a corporation or LLC, you need to act in a timely manner and file the appropriate paperwork to avoid legal issues and extra costs.
If you drag your feet, your business might still be responsible for taking certain compliance measures and be subject to additional taxes, fees and penalties, even if you’ve stopped selling your products and services.
Closing a business: How do you make it official?
Dissolving a corporation or LLC requires a legal filing. Generally, you must file either an “Articles of Dissolution” document or a “Certificate of Termination” (depending on your jurisdiction) with the Office of the Secretary of State within the state where your corporation or LLC is formed. If you fail to file the appropriate documentation, you might be on the hook for taxes, penalties, and other fees for every day your company continues to exist in the state’s records.
Do states ever deny requests to close businesses?
It happens. Some states won’t let companies dissolve if they owe back taxes or are otherwise not in good standing with the state. If your business faces those issues, depending on the state in which you’ve formed your corporation or LLC, you may need to return your company to good standing before you’ll be allowed to dissolve it.
What about federal requirements?
You’ll have some paperwork to take care of at the federal level, too. The IRS requires you to file an annual return for the year you close your business. You must also file final employment tax returns — and make final federal tax deposits associated with them — if you have employees. Also, you’ll need to report disposing of business property and any exchanges of like-kind property (property of the same nature, character or class).
Gaining closure when closing a business
Just as there are resources available to help you work through the process of starting a business, there is also help available to make sure you don’t miss a step when closing a business.
Consider talking with an attorney or working with a reputable company that offers business legal filing services to ensure all paperwork and reporting are done and filed correctly. Review the IRS website’s “Closing A Business Checklist,” which shares helpful information and links to various federal forms associated with dissolving a company.
Although closing a business may not be a joyous occasion, it can be less traumatic when you’re in the know about what you need to do and have the peace of mind knowing it will be done right.
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Also published on Medium.