How to Close a Business

Sometimes a business doesn't work out and you'll have to close it. Here's what you need to know about the process of shutting down your company.

by Jane Haskins, Esq.
updated January 10, 2022 ·  3min read

Closing a business isn't as simple as locking the door and walking away. Done right, a business closure takes care of your employees, creditors, taxes, and legal filings. Closing a business in a systematic way sets you up for a fresh start and avoids lingering debts and disputes.

To start the process of shutting down, have a meeting with your business partners or board of directors. At the meeting, take a formal vote on closing the business and memorialize it in a written resolution. Your company bylaws or operating agreement will guide you on the procedure to follow.

Once you've voted to close your doors, create an exit strategy—a written plan for how to legally close down a business. Your exit plan should address all the steps outlined below.

man standing in front of closed business

1. Collect on Accounts Receivable

Before you go public with your plans, make an effort to collect outstanding receivables. Call the people who owe you money and see if you can negotiate immediate payment. People may be less likely to pay you if they know you're getting ready to go out of business. And the money you collect can help you pay off your creditors.

2. Notify Employees

Your employees will figure things out sooner or later, so it's best to be upfront and tell them when you're closing the business. While you're at it, contact your company's benefits coordinator about health insurance and retirement plans.

Check your state's laws for guidance on when you must issue final paychecks. Make a plan for reimbursing final employee expenses and having employees turn in company property such as computers and cell phones.

3. Notify Creditors

To minimize the chance of surprise claims, lawsuits, or late fees in the future, send your creditors a written notice explaining that you're going out of business. Tell them how to submit claims for payment and give them a deadline after which claims will be barred. Most states require 90-180 days' notice.

A notice to creditors minimizes the chance that unpaid bills or late fees will surface later on. If you don't have enough money to pay your creditors, try to negotiate a lower amount or seek advice from a bankruptcy lawyer.

4. Deal With Taxing and Licensing Agencies

Find out whether your business owes any federal or state taxes and pay whatever you owe. In some states, you'll need a document confirming you're up to date on all your state taxes before you can file articles of dissolution.

Other tax and license issues you may need to address include:

  • File final state and federal income and employment tax returns.
  • Cancel any "dba" registrations with the agency where you filed them.
  • If you have a general business license or specific licenses related to the kind of business you're in, cancel them.
  • If you're registered to do business in other states, contact those states to find out how to unregister a business.

In addition, cancel state sales and unemployment tax registrations.

5. File Articles of Dissolution

If you filed paperwork to establish your business as a corporation, LLC, or other formal business entity, you'll need to file articles of dissolution to end your business's legal existence. If you don't, you'll still be responsible for annual reports and fees. You'll file dissolution paperwork with the same agency where you filed your formation documents.

You don't need to file dissolution articles to close a sole proprietorship or general partnership. But check your state's requirements if you filed your partnership agreement with the state.

6. Wrap Up Your Business Finances

Sell off your assets and inventory. Pay your taxes and other creditors, and issue your final payroll. Pay off and cancel company credit cards. Once everyone has been paid, you can distribute any remaining money to the business owners.

Finally, close your business bank account and close your business with the IRS by canceling your employer identification number.

Shutting down a business takes time and planning. But once your business is dissolved, you'll be free and clear and ready for the next phase in your life.

Ready to dissolve your business? GET HELP NOW
Jane Haskins, Esq.

About the Author

Jane Haskins, Esq.

Jane Haskins is a freelance writer who practiced law for 20 years. Jane has litigated a wide variety of business dispute… Read more

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.