Unfortunately, not every company manages to become a timeless brand, and business owners are forced to end operations. According to the Small Business Administration (SBA), 30% of small businesses fail during their first two years of operation. The number goes to 50% for the first 5 years, and 66% make it to the 10 years period. Whether we like it or not, business dissolution is a part of starting a new business, and there are several aspects we need to consider when we’re dealing with this ugly part of being entrepreneurs.
Getting a business dissolution approval and our state certificate, filing our final tax forms, and collecting and liquidating debt are part of this process. This is why we came up with this quick list of aspects to consider when we are forced to close our business.
The very first step of the business dissolution process is getting the approval of company owners, shareholders, or members. This depends on the company structure our business had. In the case of corporations, any shareholder must grant approval to end the business. In the case or limited liability companies, or LLCs, we must get the approval of any member involved.
After that, we need to file the corresponding paperwork with our state’s authorities to obtain our Certificate of Dissolution. Also, we were able to complete transactions in other states, we need to file the paperwork in such states too. Depending on our state, we might need to obtain the Certificate of Dissolution before getting the approval for the business dissolution.
Once our state has approved the dissolution, we must formalize the business closure with the IRS. We have to remember that our tax obligations do not cease immediately, regardless of us not being in business anymore. This might be a long process, as the IRS has many forms and requirements for us before completing the dissolution process. However, they have the complete checklists of forms you must submit available on their website. Also, we should make sure we complete our payroll obligations before the final termination of our business. Avoiding to do so could represent significant fees, fines, and penalties, plus possible legal action from our former employees.
Part of the business dissolution process involves collecting any debt that other companies or persons might owe our company. We should do this while our company is still open, instead of waiting until the dissolution to collect such amounts. This is because it is more difficult trying to collect a debt for a company that is no longer in business.
On the other side, we also must liquidate any possible debt we might still have with any creditors or financial institutions. We might be able to decide on a payment plan or arrangement with our creditors. Also, if we don’t have enough capital to cover our debt, paying through assets could be another option.
One last thing to remember is that we don’t need to cancel our Employer Identification Number or EIN. Since the IRS can’t reassign this 9-digit number we don’t have to cancel it. Instead, we should remember that this EIN will always correspond to our now closed business. Keeping it handy might be a good idea, as we might need this number in the future.
Anyway, we recommend hiring the service of a professional tax and business financial advisor before completing our business dissolution. This way we can make sure we don’t miss any step of the process, whatsoever.
