you consider closing your business there are Pro's and Con's
that you should be aware of. You should also be aware
of the steps required to close a business.
Review the Pro's and Con's and follow the steps to close your business.
|The Pro's and Con's of Closing A Business|
There might come a time when you have to close the business. Knowing what to do when the time comes can save you a lot of time and headache.
1. You have control over the timing and execution.
2. Not as costly as selling the business to an Investor or going public.
3. Generate income from the sale of equipment.
1. The payoff is not as big as selling or going public. You only get market value for the items you sell.
2. If you have Investors you have to pay them first with whatever income is earned from the sale of the company's assets.
3. You could get resistance from your customers.
4. Your reputation as a trustworthy businessman could be in jeopardy. This is especially true if you are considering starting another business.
|Reasons For Closing The Business|
There are a number of reasons for closing a business:
Voluntary Dissolution: This is when you decide to close the business on your own.
|Expiration of Existence: Some businesses have a specified term of existence in their articles of organization or incorporation. The business may file Articles of Amendment to extend its life, or it will cease to exist.|
Involuntary Dissolution: If a corporation or limited liability company fails to file an Annual Report with the Secretary of State's Office by the specified deadline, the Secretary of State, after sending a reminder, may dissolve the business. If you want to be "reinstated" after being involuntarily dissolved, you must file an Application for Reinstatement within a certain timeframe of dissolution.
Suspension: Corporations that fail to file tax returns with the Department of Revenue for a specified number of years will be suspended or will forfeit their right to do business in the respective state. The corporation must pay its delinquent taxes within a certain timeframe of receiving a notice from the Department of Revenue or it will be dissolved or revoked by the Secretary of State.
Special Circumstances: Some types of businesses may dissolve under special circumstances. For example, a limited liability company may dissolve if a member withdraws from the arrangement and the remaining members cannot agree on whether to continue in business. Limited liability partnerships and limited partnerships will lose their liability protection unless they re-register every specified number of years.
|Steps Required For Closing The Business|
The steps for dissolving a business vary from State to State. Some states have outlined specific procedures while others only require the filing of the appropriate form.
state corporation requires the
Foreign Corporation requires the
Termination of an
LLC requires the filing of a “Certificate
Below are some common steps that would serve as a good guide to closing your business.
1. Check with the respective state for their outlined procedures and forms.
2. Obtain written permission for dissolution from all owners (stockholders) of your company (Statement of intent to Dissolve) prior to submitting a request for termination with your Secretary of State.
3. Notify employees (including contractors). Identify how you would handle termination of employee health insurance.
4. Identify and review open contracts (including leases). Determine if there are penalties for early cancellation. Identify the timeframe for cancellation notification.
5. Notify your customers and vendors.
6. Identify license and permits that may have to be terminated. There may be specific procedures for their termination. Check with the appropriate entity.
7. Get with your insurance service provider and ascertain what is the best way to terminate the business insurance.
8. Identify how the company’s assets will be handled. Will it be sold off or donated. See a list of Auctioneers and Liquidators.
9. Identify any debts and determine how they will be paid off. Provide written notice to creditors. Establish the priority for paying off debtors.
10. Pay outstanding state and federal taxes. Some states require that you obtain a “tax clearance certificate” before you can file your dissolution form. Don’t forget to check the “Final Return” box on your final tax returns. See the IRS Checklist.
11. Close accounts (bank, sales tax accounts, credit cards, etc.)
12. Submit your dissolution request with the respective State.
13. Maintain copies of business records for 5 years (required by the IRS).