Closing a business is rarely an easy choice. It is often stressful and in many situations disappointing. However, all feelings aside, there are several steps that business owners should take when closing their doors.
Employees should be notified of your decision as soon as possible. Whether it is 30 days or 2 weeks, the sooner the employees know, the more time they have to look for alternate employment.
Selling Assets and Paying Debt
With the closing of a business comes the selling of assets. Any assets in the company name, such as equipment, vehicles, inventory, or furniture should be sold to the extent possible. Once the assets are sold, the debt, if any, should be paid off.
Filing with the Secretary of State
In order to dissolve a corporation or cancel a limited liability company, certain documents must be filed with the Secretary of State. The documents you need to file vary, in part based on whether the company has any unpaid debt. In order to file the documents with the Secretary of State, your company must be in good standing with the Secretary of State and the Franchise Tax Board. In addition to filing these documents, the owners of the company should prepare minutes to document their agreement to close the company.
Final Tax Return
The state requires all closed companies to file a final tax return in their last year of operations. A CPA will be able to assist in the filing of any returns and any tax issues related to the sale of any assets.
Contact Third Parties
Any individuals or other entities that have an interest in the company should be notified. For example, if any contracts have dates that end after the closing of the company, the company should contact those contracting parties to resolve any lingering issues and notify them of the closure.
After all of the assets have been sold and debts settled, if there are any remaining company assets, they should be distributed to the owners in proportion to their ownership interests. If there is personal property or real property, an appraiser may be necessary to determine the fair market value. Once the assets are distributed, the bank accounts should be closed.
The bottom line is this- closing a business is always more difficult than expected. Don’t sidestep important legal requirements or problems you thought you were avoiding may follow you into the future. Before closing your business, talk the situation over with the lawyers at Navigato & Battin.