There are many reasons why a small business may need to close, also known as a dissolution. Dissolution refers to closing the business as a legal entity. The business will need to notify its customers, vendors and employees as well as take important steps to avoid continued financial responsibility for taxes, payments or other obligations.
There are also items to consider if the small business decides to sell instead of dissolve.
If the small business owner is a sole proprietor, he or she can decide to close the business on their own. However, if there is a partnership in place the co-owners will all need to agree to the closure and document it with a written agreement.
Next, the business owners will need to file dissolution documents, cancel any registrations, permits, licenses and business names. If the business has a trade name, this should also be cancelled.
If the business has employees, it will need to ensure the employees are paid after the closing and meet its federal and state tax obligations. In addition, the business is required to file final tax returns and may be required to store tax and employment records.
Selling the business
Owners may decide to sell the business instead of dissolving it. They should complete a business valuation so they are aware of the business’s market value. The business value may include real property, customer information, its brand recognition and future value.
The owner will need a properly drafted sales agreement, including all of the business’s assets and liabilities, inventory and names of the seller and buyer.
There is assistance available to business owners who need help to close or sell their business.