By the time you decide to close a business, you’ve probably moved on to other things – a new venture, a new job, or the freedom of retirement. Formally closing a company may feel like just another chore that will take time and money.
But it’s important to file articles of dissolution with your state to dissolve a business formally. Filing articles helps you avoid future fees and liability and gives you a sense of closure. This article helps you understand how to close a company down and walk away for good.
What Are Articles of Dissolution and Why Should I File Them?
If you organized your business as a limited liability company, you filed articles of organization with the state. If your business is a corporation, you filed articles of incorporation. These documents established your business as a separate legal entity. Business entities such as LLCs and corporations must pay annual taxes or fees or file annual reports in many states.
Articles of dissolution are the reverse of organization or incorporation articles – they end your business entity’s existence. If you don’t file articles of dissolution when you close a company, the state will assume that you are still doing business and will continue to expect you to file reports and pay taxes and fees. If you don’t, you can become liable for additional fines and penalties.
Articles of dissolution also place creditors on notice that your business has closed and you are no longer liable for debts.
Sole Proprietorships and General Partnerships
You do not need to file articles of dissolution to end a sole proprietorship, but in some states, you must formally dissolve a partnership if you filed partnership documents with the state.
Your state’s business filing agency can explain the requirements in your state.
The following are steps to dissolve an LLC or Corporation.
1. Vote to Dissolve
No matter how your business is organized, you should take a formal vote on dissolving the business and make a written record of the vote. To dissolve a corporation, look to your company bylaws for guidance on who must vote, how the vote must be conducted, and the number of votes needed to approve the dissolution. Document the vote in a resolution that you keep with your corporate records.
To dissolve an LLC, consult your LLC operating agreement for the voting procedure to follow. If you don’t have an operating agreement, follow the requirements in your state’s LLC laws.
2. Notify Your Creditors
Once you’ve decided to close an LLC or close a corporation, you should notify your creditors that lets them know you’re closing and advises them of the deadline to submit claims. The deadline is established by state law. In most states, it is between 90 and 180 days after the date of the notice. Your notice should also let your creditors know that any claims received after the deadline are barred.
Some states require you to notify creditors before filing articles of dissolution. By sending a formal notice, you establish a time frame for getting your business affairs wrapped up, and you limit the possibility that a creditor will surface long after you’ve gone out of business.
3. Take Care of Taxes and Licenses
Contact your state and local taxing authorities to determine whether you owe any taxes and then pay those taxes. In some states, you must obtain a document that certifies that your business has paid all its taxes before you can file articles of dissolution.
If you have employees, make sure that you make your final payroll tax deposits.
You’ll also need to file final federal and state employment tax returns. If you don’t pay your payroll taxes, the IRS can hold you and your co-owners personally liable for them – even if your business was a corporation or LLC.
Finally, if your business has licensed or has filed fictitious business names, contact local licensing authorities and arrange to cancel them.
4. Prepare Articles of Dissolution
You can prepare articles of dissolution by filling out a form on the state agency's website responsible for business filings in your state. In most states, that’s the secretary of state.
5. File Articles of Dissolution
To complete your corporate dissolution or LLC dissolution, you must file the dissolution articles with the secretary of state or other state business filing agency. Exact procedures and fees vary from state to state, but you must file the form in person or by mail and pay a filing fee in most states.
6. Other Steps in Closing a Business
Once you’ve paid your taxes, you can begin paying your other creditors. After everyone has been paid, you can close your business bank account and distribute any leftover funds to the business owners. If you can’t pay all your business debts, you may be able to negotiate with your creditors, or you may want to seek advice from a bankruptcy lawyer.
If you have registered to do business in other states, you should contact those states and cancel those registrations. If you don’t, your business could remain liable for taxes or annual reports in those states.
You’ll also need to file final federal and state tax returns and cancel your business’s Federal Employer Identification Number.
Formally dissolving a business by filing articles of dissolution is an easy way to protect yourself against future liability when closing a business. To further protect yourself, be sure to notify taxing authorities, pay your taxes, and notify and pay your other creditors before you close down for good.