January 20, 2021
Making the decision to close your business is not easy. Whether you have simply lost interest in running the business, have failed to find someone to sell it to, or are struggling financially due to lost revenue, there is a sequence of steps that must be followed once you choose to close up shop. From filing to formally dissolve the company to producing those final paychecks, the steps range from simple to complicated, although you will no doubt have many questions along the way. In order to do everything properly and not open yourself up to future tax liabilities or potential lawsuits, it’s best to contact an expert tax professional who can guide you through the following ten step process.
Step 1 – Review Your Documents
The first step after deciding to close your business is to review all of your legal documents. At this point, you should consult with a lawyer and a tax professional to develop a strategy for closing the business. Depending on the business type, such as a C-corporation, partnership, or sole proprietorship, the process for closing can vary. It’s best to work with a tax professional to ensure that you have all of the documentation needed and to review it thoroughly, so you can close the company in a legally appropriate manner. Otherwise, you may face unwanted repercussions later on.
Step 2 – Notify Your Partners, Employees, and Current Customers
After you’ve consulted with your legal and tax professionals and examined your paperwork, it’s time to notify everyone involved. Your partners in the company need to be informed of your decision to close the business, so they aren’t surprised by it when you make the formal announcement. On top of this, you should let your employees know that the business will be closing with enough advanced notice to allow them to find other jobs or at least start their search. Plus, your current customers and clients need to know that your business will be closing as well. Inform your customers and clients once everyone who works for or runs your company knows what is happening.
Step 3 – Inform Creditors and Collect Receivables
The next step requires you to inform all of your creditors, as well as any suppliers, of your intent to close the business. They need to know that you will not be ordering from them anymore and will need to send you the final bill for anything outstanding that you have purchased from them. This will help you determine what you need to pay once you’ve liquidated your assets. In addition, now is the time to collect any receivables that are due to you. It’s important to collect all of the money that you can in order to make your final payments to both your creditors and your employees.
Step 4 – Fulfill Orders and Liquidate Any Assets
Once all of the stakeholders have been informed of your intent to close your business, you need to fulfill any remaining orders. These more than likely have already been paid for, and you owe it to your customers (who already know that you are closing) to receive anything that they have ordered. After all of the orders are completed and on their way to your customers, it’s time to take an inventory of your remaining goods and then liquidate your assets. Many businesses do this by putting items on sale and hoping that they are purchased (in which case, they need to be shipped), but there are also companies that purchase stock in bulk in situations just like this one. The choice is yours to make.
Step 5 – Officially File for Business Dissolution
At this point, it’s time to officially close your business on paper. You’ll need to submit documents to dissolve your company in every state that you do business, so this tends to be a lengthy process. Hiring a lawyer or tax professional to do this for you will help things go much more smoothly and ensure nothing is missed. They can contact the Secretary of State for every state in which you conduct business, and e-file the dissolution notices for you, preventing any future issues from occurring after the business is closed and you have moved on.
Step 6 – Pay Your Employees
There are laws that must be followed when it comes to providing a final paycheck for your employees. Depending on the state, that paycheck must come either on their last day of employment or on the next standard payday. In addition, you may have to pay them for any remaining sick time or personal time that they have accrued, as well as any unpaid vacation days. The laws of the state in which your company resides determines exactly when they must be paid and how they must be reimbursed (if at all) for those unused days. You may also have to provide severance pay on top of this. You tax professional can also help you collect this information and calculate final paychecks to ensure you are covered legally.
Step 7 – File Your Taxes
After paying your employees, it’s time to sit down with your tax preparer and file your final tax return. At this point, you are aware of all of your final assets and liabilities, as well as how much you have paid in payroll taxes. You have all of the information that you need to file that final tax return with the IRS, as well as with the state, city, county, and any other localities that you may need to file a return with.
Step 8 – Pay Taxes and Other Debts
Once your taxes are filed, it’s time to pay them, and any additional remaining debts. This way you don’t have creditors with balances due (unless you plan on filing for bankruptcy, which is another process), and you can close your business free and clear of any debts.
Step 9 – Disburse Your Remaining Assets
Any money left after paying all of your creditors, taxes, and other debts, should be disbursed to the stakeholders and investors in your business. Of course, if you are the only stakeholder, then those funds are yours. It is time to take that next step towards officially closing your business and disbursing those funds as necessary. You are almost done with the process.
Step 10 – Close Your Bank Accounts
Finally, after you’ve closed your business, dispersed your remaining assets, paid your taxes, and dissolved your company on paper, it’s time to close your business’ bank accounts. You don’t want to leave them open, as this will look like you have remained in business, which can result in some tax liabilities and issues with the IRS. At this point, you also want to have the utilities to your company’s building turned off as well. Remember to keep all of your paperwork for your business in case you need to refer to it later on. You never know when something might come up and want to always have proper documentation just in case.
If you need to close your business and are in need of additional guidance when dealing with the IRS on this issue, reach out to the tax advisors at Enterprise Consultants Group. We have many years of experience in the field and can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.
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