Articles of Dissolution | How to Properly Close an LLC or Corporation
There are many different potential reasons why you might want to dissolve your business, including retirement, bankruptcy proceedings or a decision to change your career entirely. However, you can’t simply stop doing business without taking any further actions at all. Once a company is no longer doing business, it has to perceive in a systematic way through the correct legal steps if it’s going to wind things up. Not doing so can result in serious financial and legal problems.
How to Close a Business
LLCs or Corporations are legal entities granted their business status by state authorities. Because of this, these entities can only be dissolved by the state itself. Not surprisingly, business laws in every state provide business entities with procedures to follow for initiating the dissolution process. Such legal entities have to be dissolved through such formal action, and cannot be dissolved simply by a phone call or a business letter.
Until such time as the company in question gets a certificate of dissolution from the state agency responsible for such registrations – or from the Secretary of State – it remains entirely liable for all interest, penalties, fines, assessments and taxes devolving on the business. Also note that when you are closing down a business, there are a number of other actions that have to be taken on the state and federal levels before the dissolution can go into effect. This is a complex process, and it’s usually best to ask your business’s accountant to handle this for you. This person will understand how to close a business in the right way.
- Your business is still required to file its federal income tax return even in the year in which it will go out of business – this should be marked “FINAL.”
- The final federal tax deposits are also required.
- You must report any capital gains and/or losses.
- The shareholder’s/partner’s shares must be reported.
For corporations or LLCs that have employees:
- The employment quarterly or annual tax form.
- The last employment tax returns must also be filed.
- Employees should receive final withholding and wage information.
- W-2 information has to be reported.
- The return for final tips income and allocated tips information should be filed.
- Final filing for the employee benefits/pension plan.
- Payment information should be issued to subcontractors.
- 1099s information should be reported.
- You will probably need to file a last tax return in the state where the entity is registered.
- Remember that the last state tax deposits have to be made as well.
- The final sales tax return also has to be filed if your business collects state tax.
- The final employment tax returns must be filed for any employees.
- There’s also the annual or quarterly employment tax form.
Let a professional handle your corporate dissolution
Let a professional handle your corporate dissolution
Proper Steps for How to Close an LLC or Corporation
Knowing how to close a corporation or an LLC correctly is vital when deciding to end your businesses operations. When you have made the decision that it’s time to close down your corporation, one of the first things you have to do is to set up a meeting of the Board of Directors for the Corporation. At this meeting, a resolution has to be proposed for closing the business – otherwise known as a “termination proposal.”
Following the proposal, a vote should be taken, with the meeting minutes being duly recorded and maintained in the company records. The proposed dissolution must be approved by a clear majority of shareholders. The method for how to close an LLC is a bit more straightforward. LLCs can simply issue a member resolution concerning the dissolution of the LLC, with the required number of members then signing it.
After this, Articles of Dissolution have to be filed with the Secretary of State. Generally, the forms for doing this can be found on the Secretary of State’s website, although in some states the process of how to close a corporation is a little more complex. Many local libraries also have copies of these documents. Your lawyer can ensure that no mistakes are made in the process of filling out this form.
Once the secretary of state in the state in which your business operates approves your business’s request to dissolve either your corporation or your LLC, all of the company assets will have to be distributed amongst its shareholders or members. In the process, any credit or bank accounts will have to be closed. If you have suppliers to whom your business owes outstanding debts, these will need to be settled. The reverse is also true, since if any businesses or individuals owe your business money, this will need to be paid so the proceeds can be distributed once the business ceases operation.
At this point, the LLC or Corporation will cease to exist on the day that the certificate of dissolution is filed and then approved by state authorities. Note that state corporate law does not allow the effective date for dissolution to be changed from the date listed on the certificate of dissolution. Once that date arrives, that’s the end of the business.
It’s required that the certificate of dissolution be signed by the director, an officer, an attorney-in-fact or some other duly authorized individual within the business. Along with the signature, the name and/or title of the person signing must be included on the document as well – verifying that it was someone authorized to do this.
Benefits of Carrying out a Proper Dissolution
Not correctly carrying out the dissolution of an LLC or Corporation can have very negative consequences for you and anyone associated with your business. There are two principal reasons why you will want to close down your company in an official way even, if it’s no longer actively conducting business.
Fees and Taxes:
As long as any legal business entity exists, it can be required to pay taxes and certain fees. In order to avoid unnecessary expenses for a business that is no longer operating anyway, it’s strongly recommended to systematically close down the business according to the rules established in your state. Until you get an official certificate of dissolution, a corporation or LLC will continue to be expected to file any and all municipal, state and federal tax returns. Failing to file such returns – or failing to file them on time – can easily result in heavy penalties and costly fees.
Even though you may have already entirely ended any activities or operations at your business, the LLC or Corporation can still be legally responsible. This includes the officers and directors and – sometimes – members and shareholders. While normally LLCs protect their members from liability, this is not universally the case. It is possible for these individuals to be viewed as personally and legally liable for certain aspects of the company’s ongoing business even after it has stopped operation, unless of course the business is legally dissolved with Articles of Dissolution.
Other points to consider include:
- The requirement in some states to get consent from certain departments – such as Finance or Labor – before shutting down your LLC or Corporation.
- Contacting the IRS to close your EIN account.
- Notifying your registered agents – if any – regarding the dissolution of the company.
To Sum Up
Dissolving an LLC or a corporation is rarely a happy event for any business person. It usually means that something has gone horribly wrong and that the business can no longer carry out its activities and continue paying its employees. Even in the case of retirement, it’s hard not to feel a bit sad. However, the situation can be made a great deal worse if you fail to properly shut down your business in a way that satisfies both federal state and municipal requirements. Doing otherwise can easily result in a mountain of additional problems that are best avoided.