How To Dissolve a Business
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UPDATED: Feb 8, 2020
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Dissolving a business, also known as a dissolution, requires several important steps from all of the business owners. While you may stop the business activity by canceling all action within the business, it is not wise to leave the legal entity intact, as you can still be subject to lawsuits. Further, officially dissolving your business will keep your creditors from continuing to charge your business with business-related expenses.
Steps to Dissolving a Business
The first step to dissolution is obtaining written permission from all of the owners of the business to dissolve the entity. After you have received written permission from all of the owners, contact your local Secretary of State to find out what paperwork needs be filed in your jurisdiction. You may contact them by phone or find your local Secretary of State’s website.
Usually there will be a consent to dissolution form that must be filed with your state tax board, which will first require you to pay all the remaining state and local taxes on your business. Prior to dissolution, you will need to file and pay federal income taxes for the business and check the box on the return to indicate that it will be the business’s last filing. The IRS can hold you personally accountable for any missed payroll taxes, even if your business entity is a corporation, so make sure all payments are current.
If you are selling your business assets as an individual or a group, you will need to file either a Form 4797 (Sales of Business Property) or a Form 8594 (Asset Acquisition Statement) with the IRS. You should also cancel all the fictitious business names, licenses or permits attached to the business. This will keep third parties from being able to use these entity licenses or permits, fraudulently or accidentally. Close all accounts in the business name including credit card accounts, bank accounts, sales tax accounts, and payroll accounts. Tie up all other loose ends, such as your utility bills, vendor bills, and monies owed to your landlord.
Final Steps to Dissolving a Business
When dissolving your business, one of the last steps is to notify all your customers and vendors and fulfill any last orders. Keeping a good relationship with them is important if you ever expect you might be in a similar business again or in business at all within the jurisdiction. You should make sure that any customer or former employee that may need to contact you in the future has your contact information. You should also hold on to all of your business and tax records for the next few years.
Getting Legal Help
Dissolving your business in some cases may require the assistance of a tax attorney or business attorney to ensure that all loose ends are tied and you are not leaving yourself open to any potential liability. Contact an experienced attorney if you have any further questions about dissolving your business.