Sometimes a company may fail and you will have to shut it. Here’s all you need to know about the process of closing down your business.
It is not as easy as closing the door and walking away to close a company. When done correctly, a company closure handles your workers, creditors, taxes, and legal filings. Closing a company in a methodical manner prepares you for a new beginning and prevents lingering debts and disagreements.
Hold a meeting with your company partners or board of directors to begin the process of closing down. Take a formal vote on ending the business at the meeting and commemorate it in writing. The method to be followed will be dictated by your company’s bylaws or operating agreement.
Create an exit strategy—a documented plan on how to lawfully shut down a business—once you’ve decided to close your doors. Your departure strategy should include all of the procedures mentioned below.
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Table of Contents
Accounts Receivable Collection
Make an attempt to recover outstanding receivables before going public with your intentions. Call the folks that owe you money and try if you can get them to pay you right now. People may be less willing to pay you if they know you’re about to go out of business. And the money you earn may be used to pay off your debts.
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Inform Employees
Your workers will figure things out sooner or later, so it’s better to be honest and notify them when you’re shutting the shop. While you’re at it, inquire about health insurance and retirement plans with your company’s benefits coordinator.
Check your state’s laws for information on when final paychecks must be sent. Create a strategy for reimbursing final employee costs and requiring workers to return corporate property like as laptops and mobile phones.
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Inform Creditors
Send your creditors a formal notice indicating your intention to go out of business to reduce the possibility of future unexpected claims, litigation, or late penalties. Tell them how to file payment claims and set a timeframe beyond which claims will be banned. The majority of states demand 90-180 days’ notice.
A notification to creditors reduces the likelihood of unpaid invoices or late fines surfacing later. If you don’t have enough money to pay your creditors, consider negotiating a lesser sum or seeing a bankruptcy lawyer.
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Work with Taxing and Licensing Authorities
Determine if your company owes any federal or state taxes and pay what you owe. Before you may file articles of dissolution in certain states, you’ll need to provide proof that you’ve paid all of your state taxes.
You may also need to resolve the following tax and licencing issues:
Complete and submit your final state and federal income and employment tax returns.
Cancel any “dba” registrations you have with the agency where they were lodged.
Cancel any general business licences or particular licences connected to the kind of company you’re in.
If you have a business licence in another state, contact that state to find out how to unregister a company.
In addition, revoke registrations for state sales and unemployment taxes.
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Submit Articles of Dissolution.
If you filed articles of dissolution to terminate your company’s legal existence as a corporation, LLC, or other formal business entity, you’ll need to submit articles of dissolution to stop your firm’s legal existence. If you don’t, you’ll still be obligated to file yearly reports and pay fines. You’ll submit dissolution papers with the same agency that handled your formation paperwork.
To dissolve a sole proprietorship or general partnership, you do not need to submit dissolution documents. However, if you submitted your partnership agreement with the state, you should double-check the criteria.
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Completing Your Company’s Finances
You should sell your assets and goods. Pay your taxes and any creditors, and then send out your last paycheck. Pay off and cancel business credit cards. You may distribute any leftover funds to the company owners after everyone has been paid.
Finally, shut your company bank account and terminate your employment identification number with the IRS.
It takes time and strategy to close a company. However, after your company is dissolved, you will be free and clear to go on to the next stage of your life.