Today I’m going to talk to you about a depressing subject in business, but albeit an important subject: failure. I love risk …and I love taking chances. As a fellow entrepreneur, I know that for the successful business I have, I’ve left a handful of failures behind it. Failure is the tuition you pay for success, and we must all “pay our dues” before we can become successful. So, when it’s time to “close the doors”, I believe it’s important to man up, face the music, and move on.
Closing your business is just as serious as opening it. Your credit and reputation are at stake, and as a young entrepreneur, those are extremely important assets to protect. So, to avoid paying extra taxes, penalties, and other fees for neglecting to close your doors, I think it’s important to wrap up all the legal ends ASAP! This way, you’re not wasting any capital, and can put that money towards your next business instead!
You Fail. Now What?
Without a formal termination of the LLC or Corporation, you can still be charged fees associated with the business. You’ll still be expected to file an annual report where applicable, and you’ll still be required to submit tax returns to the IRS and state. Legally you’re not allowed to distribute any Corporate/LLC assets to shareholders until the company has paid all of its debtors, and has been properly dissolved.
For most small business owners, closing a business isn’t complicated. There are a few key steps to keep in mind. If you’ve already stopped doing business, it’s wise to wrap things up before the start of the New Year. By dissolving your business THIS YEAR, you’ll be free from any obligations of NEXT YEAR, and thus have a clean slate to focus on the next business you start.
So how should you go about closing your doors and moving on?
1. Dissolve your Corporation or LLC: If you’ve been operating as a Corporation or LLC, you’ll need to officially and formally dissolve your business. This is done by filing an “Articles of Dissolution” or “Certificate of Termination” document with the Secretary of State within the state that your business was formed.
Dissolving a corporation or LLC can be pretty time consuming if you are not familiar with your state’s requirements; laws regarding corporate dissolutions vary by state. And if you’ve been doing business as a Corporation, LLC, or Partnership, all persons of interest must vote to close the business. You’ll need to record the final vote in the minutes of a meeting or with a written consent form. If shares have been issued in a Corporation, at least two thirds of all voting shares must agree to dissolve the company. Specific requirements do vary by state, but if no shares have been issued, then the Board of Directors must approve the dissolution.
2. Make sure your company is in good business standing by paying any back taxes. The IRS offers a checklist of the typical actions that need to be taken when closing a business, which include filing an annual return for the year you go out of business, filing employment tax returns if you have employees, and making final federal tax deposits of these taxes. In most cases, your company will be required to pay any back taxes before you’ll be allowed to dissolve it. For example, you may need to receive a “tax clearance” from your state tax board that shows that all of your business taxes have been paid and you are in good standing.
3. Cancel permits, licenses, or fictitious business names; better known as DBA’s. You should also cancel any kind of permit or licenses you hold with the state or county. There’s no reason to hold on to them, and you don’t want to be liable if someone else accidentally or intentionally uses your seller’s permit or other license. And if you’ve been using a fictitious business name, you’ll need to file an abandonment form.
While you may still have to contend with notifying employees, creditors, customers, vendors, landlords and others with whom you have business contact, consider contacting an incorporation service company to file the paperwork to close your business for you.
While it may be hard to face at first, think of it like this: By closing down a poorly performing business, you will free yourself of that failure, and have the time and opportunity to focus on the next business venture.
Have you heard of Devon Dudeman? If not, you’re missing out, I guarantee it. His honest and realistic views of business and the world are super entertaining and informative. Do you want the real deal overview of how business really works and how you can get started? Visit www.dudeman.biz and you won’t be disappointed!Subscribe to the Podcast