When you start a business (be it a limited liability company or some other type), you never want to face the possibility that, perhaps in just a few short years, you’ll be closing up shop. But this is sadly the reality for many small business owners.
No matter what the cause behind this decision, it’s not one that most professionals come to easily. There tends to be a certain amount of doubt and reflection baked into closing a business. Yet, as you anticipate your next move, you may fail to realize that closing your business can involve just as much legwork as starting it in the first place.
For instance, it can be wise to consider dissolving the business entity tied to your venture as part of your strategy for closing your business. After all, not doing so could open you up to a world of trouble. If you’re not sure exactly how to close your business or what’s at stake if you don’t do it properly, this post can be your guide. Let’s start with the risks involved in not dissolving a business.
Risks of Not Dissolving a Business
We know what you might be thinking: If your business is already inactive, is it really necessary to go through the headache of closing your LLC with the state? In a word, yes. In fact, if you don’t, you may face a ton of issues. Here are a few complications that may await you:
- Fees: If you do keep your LLC active, you’ll still be incurring fees on a state level. If your business is producing any kind of income (or on its way to doing so), this is a small price to pay. But being saddled with annual charges for absolutely no reason is just careless. Then you might face additional fees, as well as fines if you don’t meet filing requirements, once your home state discovers that your company has been closed.
- Bills: Likewise, businesses rack up (often staggering numbers of) bills. Before you close your LLC, you still need to settle any outstanding debts. If you close your business without addressing your creditors, then you might wind up complicating your life with litigation stemming from these debts or even charged with fraud. If you think of it from a creditor’s perspective, it looks like you’re trying to evade payment.
- Property costs: This one may not pertain to your business, especially if it’s based online. However, any property your LLC owns needs to be addressed some way or another. If you close the business, ownership reverts to you, but if you don’t dissolve your LLC, personal ownership simply isn’t an option you can entertain. Instead, you’ll come off as an individual who’s trying to pull a fast one on potential buyers.
- Permits: When you close your LLC, you need to let any permitting agencies relevant to your business know about your status update. Failing to do so could open your business up to potential fraud. If, for example, someone else claims to do business in your name, you could be liable for their actions as the owner on record. It’s safer for you all-around if you relinquish your business altogether when the time comes.
Steps for Closing a Business
So now you know what you may be in store for if you don’t dissolve your business entity. Still, you might be at a loss regarding the steps you should take to ensure that you’ve covered all your bases. Let’s briefly cover the major points involved in closing your business.
- Dissolving the entity: Of course, you want to start with this step to avoid all the ramifications we mentioned in the section above. All owners must come to a vote to close your business, and then you need to file a document — often called Articles of Dissolution — with your Secretary of State’s office. Check with your home state for exact details about closing your business, as they vary greatly from one state to the next.
- Settling debts: As mentioned earlier, you should ensure that any bills you still owe are paid up and closed down before you officially end your business. This is a necessary step before any remaining assets can be distributed to your LLC’s members. As an extension of this step, be sure to notify any partners about your plans and work with them to decide how to terminate your business relationships in the least painful way.
- Canceling permits and licenses: Again, we’ve covered this a bit. But that doesn’t make it any less critical. Depending on the nature of your business, this can actually be one of the more extensive parts of closing your business. Just remember that you’re liable for any remnants of your business operation that you don’t resolve with the appropriate governing bodies prior to calling it quits.
- Filing your taxes: Remember that you’re still responsible to address taxes for your business during the final year of its operation. Too often, business owners tend to forget this very important step since it may come nearly a year after they’ve ceased running their business. Don’t let that happen to you. File your corresponding tax returns — including employment taxes — to avoid any major legal infractions or fines.
Dissolving the Problem
As unfortunate as closing your business may be, we cannot stress enough how important it is that you also dissolve the entity as you do so. We’ve already discussed the consequences of not taking every necessary step along the way, and with any luck, you’re already considering how you can wade through the complicated web of tasks to close this chapter on the best possible terms. Who knows? You might already be cooking up your next business idea.
If that’s the case, we humbly suggest you consider Incfile to help you get that new business started. Our goal is to empower small business owners like you with everything you need to take your industry by storm. As you know, it’s a competitive world out there, and you cannot afford to skip any steps when it comes to building your company to last. With our extensive resources and expert assistance, you’ll be ready to maximize your opportunity to start strong and continue propelling your business forward.