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Whatever reason you have for closing your business, from overwhelming debt to wanting to do something else, there are a number of steps that you will need to follow. The process for getting out of business successfully requires planning.
If you are a sole proprietor then you may make the decision to close your business all by yourself. However, if you have a partnership or a corporation then the partner or other corporate officers are going to have to vote to close the business as well. Exiting a partnership or corporation is a multi-step process that can take from weeks to years depending on the size of the organization and the reasons for exiting.
One of the first things that you will want to do after you decide to close your business it to satisfy all of the Internal Revenue Service (IRS) requirements by filing the proper forms and disclosures. You will also need to cancel all of your permits, registrations and licenses. In addition you will want to notify your employees and customers and pay your business debts.
Closing a Business Checklist
The process of closing a business typically includes the following steps:
- Reach an agreement and obtain authorization from owners to dissolve your business entity
- Designate a leader and organize a team to handle various closing tasks
- Engage professionals and consultants as team members, such as legal counsel, a certified public accountant (CPA) and a business broker or valuation expert
- Prepare a list of assets and perform a physical inventory
- Prepare a detailed plan and assign responsibilities
- Develop a schedule for implementation
- Release announcements and notices to let everyone know that you are closing your business
- Implement your plan
- Conclude or transfer contract obligations
- Close operations
- Dispose of and transfer assets
- Prepare final financial statements and tax returns
- File articles of dissolution for the corporation
- Prepare and issue special filings, notices, informational returns and taxes, both federal and state
- Receive tax clearance notice from the proper authorities
- Close bank account
- Store business records and keep them for at least seven years
You must file an annual return for the year you go out of business. If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes. You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property and changing the form of your business.
Tax Returns Checklist
Below is a list of typical forms and reports that you will need to file when closing a business, depending on your type of business structure:
- Make final federal tax deposits
- File final quarterly or annual employment tax form
- Issue final wage and withholding information to employees
- Report information from W-2s issued
- File final tip income and allocated tips information return
- Report capital gains or losses
- Report partner’s/shareholder’s shares
- File final employee pension/benefit plan
- Issue payment information to sub-contractors
- Report information from 1099s issued
- Report corporate dissolution or liquidation
- Consider allowing S corporation election to terminate
- Report business asset sales
- Report the sale or exchange of property used in your trade or business
You will want to make a final check to make sure that you have covered all the steps for closing your business. If you have properly closed your business then you have paid all of your debts, paid all of your taxes, satisfied all of your customers and cleared your inventories. In addition, you will have told the local, state and federal governments that you are no longer in business.
You may want to get professional assistance to help guide you through the process of closing your business. Depending on the size and field of your business, some of the professionals you may want to consult include: lawyers, accountants, business brokers, auctioneers, tax experts, bankers and the IRS.