Business owners who have decided to close down their businesses may be required to file Articles of Dissolution if their companies are registered with the state as an LLC or a Corporation.
Closing a business can appear to be a complicated process, but there are few general steps that most businesses follow when ceasing operations. It is imperative that a business closes properly in order to avoid incurring additional debts or piercing the corporate veil and incurring liability for members or shareholders.
General Steps for Closing Any Business
Notify the State’s Taxing Authority
If the business is registered with the state’s taxing authority for the purposes of collecting and paying sales taxes, they must be notified of the business’s closing.
Notify all Creditors
All creditors to whom money is owed must be notified of the business’s closure. Arrangements must be made to pay the creditors all balances owed.
All Remaining Assets Must be Distributed
Once the creditors have been paid all remaining assets may be distributed between shareholders and members.
Close all Associated Accounts
All business related bank accounts should be closed.
Cancel the Employer ID Number/ IRS Notification
The IRS should be notified of the business’s dissolution. Corporations must file an IRS Form 996 within 30 days of the dissolution. Also, by writing to the IRS in order to notify them of the business closure at “IRS, Cincinnati, Ohio 45999, the business Employer ID Number will be effectively considered closed.
File the Final Income Tax Returns
It is extremely important to mark your final return as such when sending it in to the IRS.
Avoid Neglecting Employment Taxes
All businesses must file payroll taxes returns (form 941) and unemployment tax returns (form 940). Wage reports must continue to be submitted and cannot be neglected. These forms can be easily located on the IRS website at the following URL: http://www.irs.gov/formspubs/index.html
Notify City and County Officials
Cancel any fictitious DBA filings, tax accounts and comply with any other required local ordinances.
Pay any Taxes and Fees Owed
Prior to paying off any other debts, pay any taxes owed by the business.
Sole proprietors will not be required to send paperwork to the state, but all business operations must be shut down and related equipment must be sold to pay any outstanding debts.
Other types of business organization are required to file additional forms with the state. Limited Liability Companies, S Corporations, and C Corporations must officially dissolve their respective businesses by filing Articles of Dissolution.
Articles of Dissolution
An organization’s board of directors or members must create a resolution that formally dissolves the business. Internal documents that pertain to the dissolution do not have to be submitted to the state, but proof that the shareholders or members approved the dissolution must be provided.
Notify the Secretary of State
The Articles of Dissolution must be filed with the state. This document is required to include information about the entity, cite reasons for the dissolution, and include signatures of the responsible individuals.
Business owners can work through the dissolution process two different ways:
- Business owners have the option to utilize do it yourself method to work through the dissolution. A simple dissolution involving very few assets and no employees might find this method viable. The website for the Secretary of State in any state generally offers information on filing fees which usually run about $50.00.
- The more expensive option is to hire an experienced attorney to assist in the dissolution. For a more complicated dissolution involving numerous assets, this could prove to be the best method for an organization.
The IRS offers a checklist in order to help owners, shareholders, and members close their businesses properly.