Business Inactivity and Dissolution
If a company does not remain in good standing while it is inactive, the state may dissolve it and impose penalties. Owners may become personally liable for any outstanding tax liability as a result. Inactive dissolution refers to dissolving a business that is inactive. When a business dissolves, it no longer has to file income tax returns or annual reports.
Difference Between Dissolution and Termination
Dissolution is the winding up of affairs before termination. Termination is when the entity legally ceases to exist.
Checking Company Activity Status
How can I check if my company is active? Steps to check company registration status.
Businesses must withhold taxes from each check and deposit the amount withheld.
To end a business, corporations and LLCs must formally dissolve with the state.
Closing an Inactive Business
An inactive business exists legally but does not engage in transactions or business. Even when inactive, businesses have reporting requirements. To close an inactive business: dissolve the legal entity, pay outstanding bills, cancel licenses and permits, and file final tax returns.
An inactive business exists but has no transactions in a specific year. The owner may want to relaunch it but doesn’t want expenses.
Legal Implications and Considerations
If an LLC becomes inactive, the state may dissolve it and impose penalties. Owners may become personally liable for any outstanding tax liability.
Inactive corporations and LLCs can be costly. It is better to maintain entities during periods of limited or no activity. The legal steps to close a business include dissolving the entity, filing final tax returns, and canceling licenses and permits.
Duration of Business Inactivity
How long can business be inactive?
If inactive, the state may dissolve it and impose penalties. Owners of a dissolved entity have unlimited liability and limited court access.