The decision to dissolve the business is often complex. It is vital to take the appropriate steps when dissolving the business to make the process as smooth as possible and to prevent potential legal issues that could significantly impact your future plans.
Business owners must understand the implications of business dissolution to protect themselves and their assets. Certain guidelines should be followed when dissolving your business to reduce the financial and tax ramifications, and to protect your business relationship with employees and customers.
What to consider when dissolving the business
Understanding the common issues and knowing how to address them can make the process easier for everyone. Working with an experienced business law attorney is necessary, but there are some issues to consider to help you better prepare for this process:
- Close the business according to your business articles: A sole proprietor does not have as many steps to take when dissolving the business compared to a partnership, corporation or an LLC. It is important to follow the rules of dissolution outlined in your partnership agreement or business agreement and according to state laws. This may require a vote before you can dissolve the business.
- File the dissolution with the state:General partnerships, corporations and LLCs will have to file a Certification of Dissolution in New York. In addition to filing with the state, you will have to notify any creditors and resolve their claims.
- Notify IRS and state tax agency: Your company is liable for taxes from this year and any prior years. Continue to file your taxes, including capital gains and liquidation forms as necessary. Your company is also responsible for paying any income, sales and payroll taxes. Your attorney can help you follow the specific guidelines from the IRS to avoid any tax issues as you try to close your business.
- Terminate business licenses: You will need to cancel or terminate your business licenses or permits. This will protect you from being held liable for any taxes or penalties associated with each license or permit after the business is closed.
- Collect past due payments: Do not forget to collect unpaid bills or claims before you officially close your business. You are still able to collect money after the dissolution but it is easier to complete this step when your business is still running.
- Distribute any assets: The distribution of business assets will be split among each partner and other stakeholders as dictated by your business agreement. Your attorney can help you sell and distribute assets in accordance with your agreement and local laws to prevent disputes.
- Notify landlord and other parties: Notify your landlord, employees and any other pertinent parties about the impending dissolution. It is helpful to review your lease agreement before notifying your landlord so you know what to expect and what payments you may still be responsible for according to your lease.
The dissolution of your business is not something to handle on your own. Our attorneys at Rich Michaelson Magaliff Moser, LLP, are proven business lawyers who will guide you through this process to minimize the financial implications and risks involved with closing a business.