Legally Dissolve a Business

Legally Dissolve a Business: What You Need to Know

When you get started with a new business venture, the last thing you are thinking about is what you’ll need to do to close it up. The only intentions you have in mind are growing the business, building a long list of customers, and earning as much revenue as possible.

Unfortunately, it’s a reality in the business world that not all ventures are going to succeed. When you reach the point where it becomes clear that you can’t or shouldn’t move forward, what needs to happen to legally dissolve the business that you have created? That’s what we’ll discuss on this page. Doing it right will allow you to put your mind at ease and know that no problems will come up later as a result of an old business that you didn’t close down correctly.

If you’d like to get started today talking with an experienced legal team about dissolving your business properly, take a moment to call Fisher Stone. We are always happy to chat with potential clients about their needs to explain how our services can align with your needs. Let’s get started!

Be Clear on Your Reasons

The decision to dissolve a business isn’t going to arise out of thin air. Instead, it is going to come from somewhere – there must be something going on that has you thinking about moving on and giving up on this endeavor. As a starting point, it’s a good idea to explore your choice to dissolve the business just to make sure this is, in fact, the right choice. You don’t want to go through with it if there is another path forward, so take some time to be clear on your motivations and talk them over with any other stakeholders.

Obviously, the most common reason to dissolve a business is because it is no longer financially viable. If that is the case, it’s hard to argue with the decision to put an end to things as soon as possible. When people have poured time, money, and effort into a business and it simply isn’t making enough money to justify continued operations, dissolving the entity is the only reasonable decision to make.

But money is not the only reason that people move on from a business. Sometimes, there are personal reasons that come up, like poor health or even just a change in what you want to work on for the years ahead. You might also find that you are stuck in a partnership conflict where the two parties don’t see eye-to-eye and it seems easiest to just dissolve the business rather than continuing to try to work it out.

These are understandable reasons to get out of a business, but dissolving it might not be your only option. When the issue is financial, it’s likely that no one else would want to buy the business – but with some of these other reasons, you may be able to sell instead of dissolving the operation entirely. For example, if your health doesn’t allow you to operate the business as you would like, could there be someone else willing to buy it and take over the duties? It’s worth exploring that possibility before moving forward.

Go Back to the Foundation

For the rest of this page, we are going to assume that dissolving the business is the right decision in your situation and the only path forward. So, now what?

The first step is to go back to the documents that were created when your business was first formed. It’s possible – and even likely – that these documents contain some information on the process that is to be followed when the business is dissolved. The specific documentation you have in place will depend on the type of business structure that you chose. For example, an LLC should have an operating agreement that can be reviewed, while a corporation will have corporate bylaws.

What if you don’t have anything in your documentation – or you don’t have any documentation at all – to guide you forward? From there, it’s best to turn to the laws of the state where you are operating to determine what to do next. Working with an attorney at this point who is experienced in these matters is a great way to make sure you don’t take any wrong steps along the way.

Notify Everyone Involved

As quickly as possible, you are going to want to notify all relevant stakeholders of the decision to dissolve the business. Of course, if those individuals have a say in the matter, you will need to discuss the idea with them to determine how to move forward. Open communication throughout this process is going to make it as painless as possible for all involved.

The people who are impacted most of all by dissolving a business are likely to be the employees who work for the company. If there are employees, you’ll want to both do what you have to do to be in compliance with state and federal laws, and also do what is right to treat them fairly as people. That means providing as much notice as possible so they can start to find other work, while also paying out whatever they are owed under the law in a timely manner.

Also, you should be working on notifying customers or clients of your intention to close up the business. Even if business isn’t going well enough to continue, you still may have some customers who rely on your products or services to fuel their business (or some other aspect of their life). It’s a courtesy to let them know as quickly as possible when you are going to be closing, so they can make other arrangements. Additionally, depending on the contracts you have in place with those other parties, you might have a legal obligation to give them a certain amount of warning.

File the Right Paperwork

Even if you have made the decision to close the business and you have started to tell employees and customers, the business will still be considered active by the state until you formally end it. That means filing the right paperwork with the right agency and following up to make sure the paperwork was received and nothing else is needed to close out the process.

Leaving the business hanging open could cause you to be on the hook for additional fees, penalties, taxes, etc. Also, there is the possibility of liability issues if someone starts to operate a similar business under the same name in the future. You want to have a clear trail of documentation that proves you ended the business formally and left nothing open-ended that could come back to give you problems later on.

Cancel Licenses and Pay Debts

You may have a number of different licenses or permits in place to run your business. Those all need to be canceled – or not auto-renewed – as part of the dissolution process. The obvious starting point here is your business license, but you might also have something like a liquor license, a sales tax permit, or any professional licenses that are needed to operate in your space.

Take a moment to make a list of all of the various licenses and permits that you have had to acquire over the years of running the business. Then, go through the list and make sure they are all either canceled or won’t renew when the next renewal date comes around. Just as we discussed above with filing your paperwork, this is important because you don’t want to keep getting bills for fees or taxes after you have stopped running the business.

Retain All Records

Finally, just a general word or warning about dissolving a business – always keep everything you have in terms of documentation just to be safe. Some of this documentation will be in digital form, while some of it will be physical. Whatever the case, find secure places to store the records as a form of insurance in case something unforeseen comes up down the line.

Essentially, this is a matter of taking a simple step to avoid a potentially difficult situation later on. It will cost you nothing to hold onto the documentation and it will lend you some valuable peace of mind. Will you ever need to pull these documents back out to prove something to another party? Probably not – but you can’t rule it out entirely. It shouldn’t take long at all to get your documents organized and you’ll have everything you need to demonstrate that your business is formally closed and no longer a going concern.

Open Up New Opportunities

Rather than seeing the process of dissolving your business as a negative experience, you can look at it as an opportunity to tie up loose ends and move on to another exciting opportunity. With Fisher Stone on your side, you’ll be able to cleanly move on from your current business and shift your attention to whatever comes next.