Closing a Business
Deciding to close your business is a difficult decision. Once you have decided to dissolve your company, it is important to follow the proper procedures. You can’t just hang out a “closed” sign and sell the business’s inventory.
When a business closes, it has a legal obligation to pay its creditors (including taxes) before any of its assets can be sold or distributed for the benefit of the owners. If a business owner fails to follow the proper procedures for dissolving a company, the owners may be held personally liable for the debts and liabilities of the entity.
State law governs how a business is formed and operated within its borders. State law also sets forth the procedure for a business to wind-up its affairs. For example, in Arizona a business that is winding down must obtain a Tax Clearance Certificate from the state Department of Revenue certifying that all returns were filed and any taxes owed have been paid prior to dissolution. If an owner wants to ensure that the company’s obligations are terminated on the date the entity officially closes for business, the owner must follow the appropriate business wind-up procedures.
Most states require a majority vote of the owners to shut down a business. The owners should properly document the vote to dissolve the entity and record it in the entity’s records. An individual within the entity should be appointed to pay the creditors, sell its assets and close its accounts. Once the business has paid all of the creditors, an adequate amount of money should be set aside to pay any unresolved debts. Any remainder can be distributed to the owners.
To commence the dissolution process, most laws allow the business to publish notice in a local newspaper. The notice must establish the deadline for claims to be submitted. In some states, if proper notification was given, creditors may be barred from filing lawsuits after a certain period of time has passed. In other states, the notice serves to limit claims to any remaining assets that were distributed to the owners.
The business must cancel any licenses or permits. The entity may also be required to file annual reports, tax returns and other reports required by state or federal agencies.
Finally, the proper dissolution paperwork must be filed with the appropriate state office, which is typically the same place where your formation documentation was filed. This document is typically referred to as an article of dissolution, articles of termination or a certificate of dissolution. This filing establishes the date the business is shut down as part of the public record.
Just because your business is closed, don’t think that you are done yet; you should retain records of the business activities and the sale of assets in order to properly complete your tax returns in the following year.
Closing your business can be a complex process and it is essential that it is done correctly. Contact a knowledgeable business attorney at Nielsen Law Group for advice on dissolving your business. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.