5 Steps to Take When Winding Down Your Business
There are many reasons business owners close up shop, including retirement, starting a new venture or, hopefully, because they’ve won the lottery. No matter what the reason, it’s important to diligently wind down a business before moving on.
Here are five steps to take:
- Reach consensus. If you’re a sole proprietor, then the only consensus you need is your own. However, if you’re a partnership, limited liability company (LLC), or corporation, you’ll have to reach a consensus with your business partners on how and when to dissolve. Make sure that everything is in writing (this cannot be stressed enough) and follows whatever guidelines are applicable to your articles of incorporation, bylaws, and other organizational documents.
- Seek counsel. Just as you would seek experienced counsel when starting a business, you should do the same when shutting one down. Dissolution is a multi-tiered process. Everything must be identified, addressed, and resolved. This includes canceling licenses and permits, as well as filing legal and tax documents with courts, creditors, and government authorities.
- Comply with laws. State law will generally require dissolving businesses to pay employees for any work performed up until the closing date as well as for any unused vacation, sick, or personal time. State law will also govern possible notice provisions under the Worker Adjustment and Retraining Notification Act (WARN) which requires at least 60 days advance notice to those who work for companies with 100 employees.
- Resolve financial obligations. All businesses have financial obligations that need to be resolved before dissolving. Those include:
- Business taxes. When you file income tax returns for the year in which your business closes, check the box that indicates the document is a “final” return. Many state revenue agencies require additional filings for sales tax as well.
- Payroll taxes. If you have employees, you must satisfy your payroll tax responsibilities or you will risk personal liability. Inform your federal and state tax agencies that your business is closing and that you will cease to file unemployment returns and an employer’s quarterly tax form.
- EIN accounts. Businesses should close their Employer Identification Number (EIN) account by contacting the IRS. The IRS cannot cancel your account, but closing your EIN account notifies the IRS that you are not planning to use the number in the future.
- Business debts. Notify creditors of your plans to dissolve the business, contact business associates to whom you owe money, and arrange to settle all accounts.
- Maintain records. Although your business may be dissolved, you may be legally required to maintain records for a certain number of years depending upon the applicable federal and state law.
Whether dissolving your business is a happy or sad occasion, it should be handled thoroughly. Failing to wrap up all loose ends can lead to years of frustration and possible litigation with former employees, vendors, and partners. We’d be happy to help you wrap things up and move on to your next venture.