About one in twelve businesses close each year. Closing a business is a tough decision that requires you to take several steps. You cannot simply walk away and abandon the company.
You need to limit your potential for liability moving forward. To do this, you need to do these six things.
1. Seek Out Legal Advice
Before you make any moves to close your business, speak with an attorney. Develop a plan that deliberately closes your business and ties up all loose ends. This will help you limit potential liability later on.
Having a lawyer looking out for your best interest will ensure you address all appropriate actions necessary to close this chapter of your life.
2. Notify Government Agencies
One of the most effective ways to limit future liability is to inform the appropriate government agencies. Have your lawyer prepare a formal Articles of Dissolution and pay the required filing fees. Have business licenses and permits canceled. Speak with an accountant, CPA, or tax professional about setting aside enough assets to satisfy the company’s tax liaiblities.
- Secretary of State’s Office (in each state in which you do business)
- The IRS
- State tax authorities
- Licensing agencies
3. Collect Outstanding Debts
Reach out to clients that haven’t paid for your product or services and request payment in full. Do this before you announce that your company is closing. You’re more likely to obtain payment in full if you try to collect before your customers know that the business is closing.
If you’re struggling to collect right away, it can help to offer a discount. Offer to close out a client’s account by discounting the amount they owe if they pay their account balance in full immediately.
It’ll also be easier to distribute assets later when you’ve collected all outstanding assets.
4. Pay Outstanding Debts
While you are collecting outstanding debts owed to your company, you should also pay any outstanding debts that your business owes to its creditors. If you’re lucky enough to have more assets than debts, this should be relatively simple. Be sure to ask for a “paid in full” letter to document that you’ve satisfied the account.
If your business has more debts than assets, your attorney can negotiate your accounts’ settlement. Some creditors may choose to file a claim against the business. Depending on the state you operate in and your business’s status, it may make more sense to file for bankruptcy protection. Your lawyer can assist you with this.
- Bank(s)
- Landlord
- Utility companies
- Suppliers
- Third-party service providers
- Employees
While your employees aren’t creditors, you cannot skip out on paying them. Many states require that you pay them in full on their final day of employment with you.
5. Distribute Remaining Assets
Once you’ve satisfied all accounts and your books are settled, it’s time to distribute any remaining assets. Check the articles of formation for how the assets get distributed. If the shareholder or member agreement is silent on this matter, check the state’s laws for guidance.
Typically the agreement will say that assets are divided by the same percentages of assets contributed at formation. Others agree to divide the remaining assets evenly.
6. Remove Online Presence
While you can never completely remove something from the internet, you can limit your company’s online presence. Start by canceling all accounts that you have ownership of.
- Website
- Social media accounts and profiles
- Business referral services
- Search engine listings
Taking a deliberate approach to closing these accounts helps to limit online presence. It’s also a signal to those who you haven’t reached that the business is no longer functioning.
Start the Process of Closing a Business
If the time has come for you to close your business, then take the first step by speaking with a lawyer. Work with them to discuss your options and develop a closing plan. You can then work with your attorney to execute your closing plan and move forward with a clean slate.
Schedule a consultation with one of our skilled attorneys to discuss the necessary steps for closing your business.
