The decision to close a business is not to be taken lightly. Although most business owners hope that the process of closing their business will be quick and easy, that is often not the case. Business closures involve complex procedures that require time, energy, and organization. Failure to carefully adhere to these procedures could result in additional expenses and extensive problems. As you consider closing your doors, keep the following steps in mind.
- Provide notice. Informing other interested parties—creditors, vendors, customers, and employees—about the pending closure is an essential aspect of shutting down your business. You should carefully consider how and when you communicate with each of these parties. Various local and federal laws impose rules regarding notification. For example, in some states, businesses are required to notify creditors of their intent to close by publishing notice in the paper for a specified period of time. Adherence to these mandates can help protect your business if a creditor demands payment. If a creditor has missed a deadline for demanding payment, the creditor will have limited grounds for recovery because you provided notice as required by law.
- Review your governing documents. Another critical step is following any requirements for liquidating and closing your business that are outlined in your governing documents. These provisions can help guide the order in which your business distributes the remaining funds after ending business activity. The governing documents may also provide guidance regarding the process for determining the current fair market value of your business. Moreover, reviewing these documents can ensure that in situations where there are multiple owners, the various owners follow the proper procedures.
- Complete required state filings. Many states require certain filings with the secretary of state or other governmental entities. For example, in some states, companies that are closing must file a document called a Certificate of Dissolution. In addition, businesses should cancel any licenses and permits that will no longer be necessary. Completing all of these filings will ensure that you avoid unnecessary charges and fees.
- Determine your collections strategy. As you close your business, you must determine the best way to collect outstanding balances. Closely related to providing notice, you must implement your collections strategy in a way that does not disincentivize your current clientele from paying any amounts due to your company.
- Sell the company’s assets. A critical aspect of closing your business is identifying the assets and inventory that your business owns. Once identified, you must sell these assets or distribute them in alignment with your closing procedures. Before the owners of the business receive any of the funds, you must first use the money recouped from the sales of these assets to pay final creditors.
- Pay taxes. The federal and state governments are serious about tax collection. Upon winding up your business, calculate the taxes due and pay them off. Additionally, be sure to indicate on any tax forms that it is your final return.
- Distribute remaining funds to owners. Once all creditors, outstanding balances, and taxes have been paid, then and only then should the remaining funds be distributed to the owners of the business.
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As you close down your business, we are here to help you make the right choices to reduce unnecessary burdens, minimize risks, and successfully turn the next page of your life. We can advise you about the best practices and legal requirements for notifying interested parties, assist with review of documents and filings, and discuss strategies. Call our office to schedule your appointment today.