When it’s finally time…time to wind down your business and move on to the next chapter in your life…there are 5 steps you should make sure and take as things come to a close. While I’m sure you can come up with a list of your own, these 5 steps might help get you thinking in the right direction. Feel free to add to the list.
The 5 Steps I would recommend to every business owner who has made the decision to wind things down are…
- Reach Agreement with Your Other Owners…If you’re a sole proprietor, then this is probably a mute point, other than getting the possible agreement from your spouse that it is time to wind things down. But if there are others involved in the business, this is absolutely the first step you should take before doing anything else. This would include all forms of a business outside of a sole proprietorship…such as if you’re a partnership, limited liability company (LLC), or corporation. If you are one of these, you’ll need to reach a consensus with your business partners on how and when to dissolve. And even though everyone appears to be in agreement, make sure that everything is in writing. I can’t stress this point enough…get everything in writing. It’s a good idea to check into your legal documents and follow whatever guidelines are applicable to your articles of incorporation, bylaws, and other organizational documents.
- Seek Professional Counsel Early and Often…I don’t say this because I’m an attorney, I say it so you can reduce or eliminate unnecessary surprises. No one wants surprises at this stage in the process…you want things to be smooth and easy. Think of when you formed the business…you probably involved legal counsel early and frequently. This is just the same only in the end instead of the beginning. Dissolution of a business is a multi-tiered process. Everything must be identified, addressed, and resolved. This includes canceling licenses and permits, as well as filing legal and tax documents with courts, creditors, and government authorities. A competent business attorney can assist you with all of these issues and all the nuances associated with them.
- Comply with All The Laws…This means it is important to understand the laws so you can comply with them when you wind things down. State law will generally require dissolving businesses to pay employees for any work performed up until the closing date as well as for any unused vacation, sick, or personal time. State law will also govern possible notice provisions under the Worker Adjustment and Retraining Notification Act (WARN) which requires at least 60 days advance notice to those who work for companies with 100 employees. These are just some of the laws you need to pay attention to…a business attorney can guide you through this process as well.
- Resolve All Financial Obligations…Every business has financial obligations that need to be resolved before dissolving. Identify these early so that you know what is ahead of you and your partners financially…again, think “no surprises.” Some of these might include:
- Business taxes. When you file income tax returns for the year in which your business closes, check the box that indicates the document is a “final” return. Many state revenue agencies require additional filings for sales tax as well.
- Payroll taxes. If you have employees, you must satisfy your payroll tax responsibilities or you will risk personal liability. Inform your federal and state tax agencies that your business is closing and that you will cease to file unemployment returns and an employer’s quarterly tax form.
- EIN accounts. Businesses should close their Employer Identification Number (EIN) account by contacting the IRS. The IRS cannot cancel your account, but closing your EIN account notifies the IRS that you are not planning to use the number in the future.
- Business debts. Notify creditors of your plans to dissolve the business, contact business associates to whom you owe money, and arrange to settle all accounts.
- Maintain Efficient and Proper Records…Although your business may be dissolved, you may be legally required to maintain records for a certain number of years depending upon the applicable federal and state law. Whether you are legally required to do so or not, it is always a good idea to keep these records locked away somewhere in case there is ever an issue that needs to be addressed after the sale of the business. These could be financial, employee, property, or a host of other issues so it’s just best to keep your records together
Whether dissolving your business is a happy or sad occasion, it should be handled thoroughly. Failing to wrap up all loose ends can lead to years of frustration and possible litigation with former employees, vendors, and partners. If you every have a question about how to properly dissolve or wind down your business, just ask. I’m happy to give you some insights or point you in the right direction to help you finalize the business in the easiest and best way possible.