Whether it be retirement, new ventures, or hitting the lottery jack pot, there are many reasons why business owners decide to close a business. No matter the reason, business owners should diligently wind down their business before completely moving on.
Here are five important steps business owners should take:
- Reach Consensus. For sole proprietors this step isn’t a problem, because you are the only one who makes the decision. However, if you are a limited liability company (LLC), partnership, or corporation, all business partner must come together to decide on how and when to dissolve the company. The most important point her is to have all decisions in writing. Decision makers must follow the guidelines set forth in the applicable to articles of incorporation, bylaw, and other organizational documents.
- Seek Counsel. In the same way that business owners seek good counsel when starting a business, they should do the same when winding down their business. Because dissolution is a multi-tiered process, everything must be identified, addressed and resolved. Some issues to consider include filing legal and tax documents with courts, creditors, and governments, and licenses and permits.
- Comply with the Law. Most state laws require companies to pay employee salaries, and compensate them for unused vacation, sick time, and personal leave, up until the date of closing. Employers must comply with state law and the Worker Adjustment and Retraining Notification Act, which requires companies with 100 or more workers to get give each employee 60 days advance notice of the company closing.
- Resolve Financial Obligations. Before dissolving, companies must address and resolve all financial obligations, such as:
- EIN Accounts. Business should contact the IRS and close their Employee Identification Number (EIN). Though the IRS cannot cancel your EIN account, by closing your EIN account notifies the IRS that you do not plan to use the EIN in the future.
- Business Debts. Business owners should contact all outstanding creditors of the closing, notify business associates that are owed money, and arrange for the payoff or settlement of all outstanding debts.
- Payroll Taxes. Business owners with employees risk being personally liable for payroll taxes if such taxes are not paid prior to the dissolution of the company. Owners should contact state and federal agencies to inform them that the business will dissolve and that no further unemployment returns or employer’s quarterly tax forms will be filed
- Business Taxes. Owners should check the “final” return box on the final federal income tax return for last year in which you operated the business. State revenue agencies may also require additional filings for sales taxes.
- Maintain Records. Even though you have wound up and dissolved the business, state and federal agencies may still require that records be maintained for a certain number of years. The amount of time these records must be maintain depends upon the applicable federal and state laws.
Whether dissolving the business is a happy or sad occasion, owners should approach the process thoroughly. Failure to complete the proper steps or maintain the proper records could lead to year of frustration and possible litigation with partners, vendors, or former employees. Contact the Soto Law firm today for a free consultation on how to wind down your business.
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