Creating and establishing your business took time, and so will dissolving it. Though there are several steps you must take, it is worth it. When you dissolve your business correctly, you are effectively limiting your liability. For example, if you have an LLC, you have annual fees, reports, and other administrative obligations. Unless you dissolve your business by taking the appropriate steps, the IRS has no way of knowing you are no longer operating.
Although we will elaborate more on this in a moment, you want to settle your debts with creditors and then sever your relationship with them. Business owners who simply “walk away” from their business may find themselves being contacted by creditors months or years after the company is no longer operating. Your obligation to pay those debts depends on whether you dissolved your business correctly.
The Steps You Must Take
Because most small businesses are LLCs, we will be using that as an example of how to dissolve a business. The first step is to get the members’ approval to dissolve. (The statutes in your state specify the rules and requirements for getting shareholders’ approval for dissolving a corporation.) Here in New York, business owners must file a Certificate of Dissolution.
There is a small fee associated with doing this, and currently, the cost is $60. Before, we mentioned that the IRS must know your business is no longer operating. The Certificate of Dissolution allows you to notify the proper channels within the state of your decision to close.
Although you may have notified your state government of your intentions, you may still owe state and federal taxes. Closing does not free you of your tax liability. You must file your respective tax forms with the appropriate agencies. Otherwise, you may still face the obligations and fees associated with running an LLC.
The next step is to settle the debts you owe to your creditors. You must notify your creditors of your intentions to close the business while also providing the information they need to file a claim with you. Depending on where your business is located, there are timelines associated with this. For example, you cannot arbitrarily choose to give them a week to file a claim. By abiding by the correct timelines, you ensure that you are not liable to pay the claims that are filed after the deadline.
After you have settled the claims, you can divide the remaining assets among the owners based on their percentage of ownership. If you own the business with another person and the business is split equally, you get half of the remaining assets. Lastly, you can file the Articles of Dissolution with your Department of State.
Andrea L. Gamalski Attorney & Counselor at Law
If you have any further questions about dissolving your business, contact Andrea L. Gamalski, Attorney & Counselor at Law, to schedule a consultation. We can assist you with the claims your creditors make—especially if you feel the claim is unjustified—and filing the appropriate paperwork with the correct agencies. We look forward to hearing from you, so we can learn more about how we can help.
Andrea L. Gamalski Attorneys at Law
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