Business Transfer Legal Issues
Legally Dissolving a Business
Sooner or later, every business comes to an end. When that day arrives, it's comforting to know you have the information you need to legally dissolve your business.
Endings are rarely as fun as beginnings. That's especially true when it comes to your small business.
Whether you are dealing with heavy financial losses or have simply sold off your company's assets, the process of dissolving a business can be an emotionally heavy time. But before you can walk away from your operation, you will need to make sure you have legally dissolved your business.
Dissolution requirements vary based on your business structure and the type of legal entity that is being dissolved. Nonetheless, here are several steps you may need to perform to legally call it quits.
- Vote to Dissolve. Some types of businesses (i.e. C corps, S corps, LLCs, partnerships) must conduct a vote to close the business and initiate dissolution proceedings. The vote must be performed according to the organization's governing documents (e.g. Articles & Bylaws), but usually requires a majority to pass. Sole proprietors, on the other hand, can simply make the decision to dissolve the company.
- Formal Dissolution Filings. Legal dissolution may necessitate several filings with your state government and other interests. In most states, dissolutions are handled through the Secretary of State's office. You might also need to file forms locally to cancel applicable permits, licenses, DBAs, etc., not mention the cancellation of leases and other obligations.
- Inform Key Stakeholders. It's important to make sure the people and organizations that have been involved in the life of your business have been notified about its dissolution. It goes without saying that you should inform your employees as soon as possible so they can look for new employment. But you should also develop a strategy for informing your customers, vendors and suppliers.
- Pay Outstanding Obligations. Even though your business is no longer active, you will still be legally responsible for outstanding bills and obligations. Many business owners retain key office staff for a few months following the business's closure to track down outstanding obligations and tie up any remaining loose ends.
- File Your Final Tax Return. Businesses are required to file a final tax return for any year in which they did business. If your business was a corporation, you will need to file a final corporate return. If your business was a pass-through organization, you will need to include the last year's income and expenses on your personal return. Since business closings can be complex, you may want to consult your tax preparer for more information.
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