The journey that your company has taken has reached its conclusion, and you have made the difficult decision to close the business for good. Keep in mind that this is a choice you have made during a difficult economic period.
There is a long list of tasks to be done to close a business formally. This list can be much shorter if you own a sole proprietorship, as they do not have to be registered with the state in most places. Any other type of business must make sure to comply with state, federal, and tax regulations designed to cover the closing of a business. Otherwise, you could become personally liable for business taxes, fines, and missed payments.
The best step you can take is to hire a commercial law firm to provide you with a business attorney who can advise you on the list of tasks you are required to complete and guide you through the process.
Prepare a Formal Document of Dissolution
No matter what type of business it is, you must have a formal document of dissolution. This document may not be required by the state or federal authorities, but it is necessary to protect you.
This document will be proof of the agreement of all shareholders agreeing to the dissolution of the business. It must show clear approval on their part for the terms under which the business will be ended.
This document will usually require a clear statement that the business will be dissolved according to the specific state laws to which it is subject. You must also include the plan for liquidation of all assets and how they will be disposed of, sold off, and done with the resulting funds. The shareholders will need to approve the method of disposal or sale as well as sign off on the disposal of funds.
Settle Sales Taxes and Outgoing Payments
While the state registration authority will have a list of tasks for you to follow when dissolving your business, it is good to check with the state tax bureau. It is better to be sure than to find any discrepancies after the fact.
If you have used the state tax bureaus services to collect and pay sales taxes, you may still be registered with them and formally provide them with proof of the business’s end.
One of the first set of payments that you must make a plan to settle is payments to vendors you may still owe money. If you approach them and sit down to develop a payment plan that works for both of you, you may be able to settle these debts without dipping into emergency funds.
Prepare Your Employees for the Dissolution
It would be best if you informed all your employees of your intent to close the business as soon as possible. Develop final payment plans for them that are per state and federal laws while keeping in mind what is possible for your business at this time. If you need to pay them in installments or after the sale of assets, then make this clear in their exit paperwork so that they can be prepared to adapt to the change in their circumstances.
You are still legally obligated to continue filing payroll tax documents and will need to begin filing unemployment tax returns as well. You may need to submit payment reports for independent contractors that you have business relationships with, as well as for your in-office staff.
Also, provide your employees with as much aid as you can to help them find new employment. It can be hard to find a new job during this growing recession, and your formal involvement can make all the difference in many cases.
It would help if you formally informed your clients as well. A press statement in a local newspaper is a good step but inform your clients with whom you have ongoing projects more directly.
Consider sending them an email outlining what is happening and how you plan to approach their outstanding job. This would give them some paperwork to fall back on as well. It might be simpler to refund any payments, suggest alternate services, and request that they formally terminate the contract.
These clients are the people who have helped your business grow and succeed. They may come back to you if you ever decide to go back into the business. Ending things with them on a positive note can incur goodwill that may benefit you in the future.