How Do I Close a Business with the State? Steps to Dissolve a Business

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Properly dissolving a business is a multi-step process that requires careful planning and adherence to legal and financial obligations.

Preliminary Steps

  1. Collect Outstanding Receivables: Attempt to collect unpaid bills before announcing closure. Debtors may withhold payment if they know you’re closing. Consider selling accounts receivable to quickly access funds.
  2. Fulfill Customer Commitments: Fulfill outstanding orders and refund customers for unfilled orders.
  3. Employee Communication: Communicate closure to employees before the public announcement and pay them final wages including unused vacation.

Legal and Administrative Actions

  1. Formal Agreement to Close: Formally agree to close through a majority shareholder vote or board meeting recorded in minutes.
  2. File Articles of Dissolution: For corporations and LLCs, file articles of dissolution with the state to terminate the company.
  3. Notify Stakeholders: Notify stakeholders like customers, vendors, and lenders of closure.
  4. Protect Assets and Credit: Protect company assets and credit after dissolution to prevent consequences from improper closing.
  5. File Final Tax Returns: File final tax returns and related forms based on company type to the IRS and state. Sole proprietors file Schedule C. Notify tax agencies within 30 days of closure. Finish payroll taxes and pay owed amounts to prevent penalties.

Detailed Exit Strategy

Develop an exit strategy by following these steps to ensure a proper dissolution of your business:

  • Plan closure in advance.
  • Discuss strategy with partners.
  • Announce intent to dissolve.
  • File articles of dissolution.
  • Notify the IRS within 30 days.
  • Admit it’s time to close.
  • Follow the required process.
  • Protect assets and credit.
  • Clearly notify stakeholders.
  • Prevent potential lawsuits.

Tax Obligations When Closing

Do you have to notify the IRS when you close a business?

Yes, you must file a final tax return when you close your company. The filing notifies the IRS your business closed. Requirements and deadlines depend on the company type, for example, a sole proprietorship files a Schedule C with personal taxes.

Closing a business involves a strategic approach and can take several weeks or months. Plan accordingly to meet all obligations and prevent future legal and financial issues.

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