If you own a small business and are planning to dissolve your business, there are several things you must do in order to properly dissolve it. These steps are the same for all small businesses, regardless of whether they are a limited liability company (LLC), a partnership, corporation, or a non-profit.
In most cases, the process for dissolution will be stated in the company’s bylaws and policies. Thus, a good place to start when it comes to dissolving a business is to review company bylaws. You should check to see if there are specific instructions and preferences that the organization would like to follow. There may also be state and federal guidelines that you will need to follow during dissolution.
There are several steps that must be taken to legally dissolve your business. You cannot simply “close up shop.” The requirements may vary a bit depending on the makeup of the company and the state(s) the company is qualified to do business in, but you will likely have to do the following:
- Vote to close the business, among shareholders or members, according to the bylaws in your company’s organizational documents. If they do not include a voting procedure, you can follow the state in which the company does business for dissolution.
- File for dissolution with the state(s) where your company does business.
- Cancel all permits, licenses, and fictitious business names used by the company.
- Give notice of dissolution to all creditors, as well as a new address where they can contact you, or the other members/shareholders.
- Settle any outstanding debts owed by the company.
- Close all bank, service and credit accounts under the company’s name.
- Distribute the company assets among the owners. If you are going to sell any business property, additional forms with the IRS may be required.
The laws for dissolving a business are different in each state, therefore, you should contact the office of the Secretary of State to get the exact filing requirements for the state(s) where the company does business.
Even though a business has ended, this does not necessarily mean that the partnership(s) has as well. It is important to note that partnerships can exist independently of the business. Therefore, if you wish to terminate the partnership as well as the business, you must inform your partners and the state about this decision in a separate forum. The dissolution of the partnership must be made as a mutual agreement between all the partners. Partnerships may also be dissolved upon the death of one of the partners.
Dissolving a business ends the company as a legal entity. However, if the business continues to incur debt, the necessary steps may not have been taken or done properly. For example, the IRS and the state/local governments require final taxes to be paid off before the business is considered closed.
This requirement is especially important to consider when it comes to partnerships. Each partner bears the costs and debts associated with any obligations undertaken by all partnerships.
During dissolution, there are several complications that may arise. The dissolution process can often uncover long-standing issues that need to be addressed. A common legal issue connected with dissolution is that of shareholder rights and dividend disputes.
For example, some shareholders may complain about the share of profits that they receive during the process. Again, the distribution of profits among shareholders will typically be stated in the company bylaws. This underscores the importance of having bylaws that are clearly written.
Another common dispute involves the distribution of company property. In some cases, creditors may be able to claim company property as debt payment. If this is the case, an appraiser may be needed to determine the value of the company’s property.
Dissolving a company often occurs during an extremely difficult time, both financially and emotionally. This is especially true if there has been a breakdown of the relationship among partners, shareholders, or members. A small business will be able to facilitate the dissolution process and make sure that your individual rights are protected.