Seven Steps for Winding Down Your Business
The first step in winding down your business is deciding it is time to close. For some business owners, deciding to close can be the hardest step in the process of exiting a business. Each business is unique. Once you decide to wind down your business, consulting with a Maryland business attorney can help ensure you take all necessary legal steps to close your business.
Seven Steps to Close Your Business
After deciding to close your business, several factors, including the business structure, dictate the steps taken to close a business. If you are a sole proprietor, you need not take any special steps to close the business other than deciding it is time to wind everything down. However, if you are incorporated, a member of an LLC, or you have a partner, you need to meet to vote on closing the business and then develop an exit plan.
After the decision to close the business is final, the typical steps involved in winding down a business include:
1. Complete Outstanding Projects Or Jobs
If you have outstanding contracts, projects, or orders, you need to complete those obligations before closing. If you close without fulfilling contractual obligations, you could be personally liable for damages, depending on the business structure.
2. Notify Employees
Notifying your employees can be difficult, especially for small business owners who view their employees as family members. The timing of the notification is up to the business owner and depends on several factors. If you need to finish jobs, you may want to wait until all jobs are completed before notifying employees.
Consider how you will collect company property, keys to the premises, and other items that employees may have in their possession that belong to the company. Always review state and federal employment laws to ensure that you comply with termination policies for employees, including final pay, benefits, and retirement accounts.
3. Liquidate Assets
Once all jobs are completed, the company can liquidate assets. In liquidating assets, it is important to review your outstanding receivables. Any uncollectable receivables may be sold to a third party at a discounted rate.
4. Pay Outstanding Debts And Obligations
Notify your creditors and lenders that you intend to close. Request a final statement for all accounts. Give creditors a deadline for submitting filing bills.
Review all accounts payable and prioritize debts. Some debts have higher priority, including secured debts, tax liabilities, employment-related obligations, and co-signed or personally guaranteed debts. If you cannot pay all business debts in full, it is wise to seek advice from a business attorney before paying any debts. An attorney can help you prioritize debts to minimize personal liability for business debts.
5. Cancel Permits, Licenses, And Registrations
Notify local and state agencies that your business is closing so that you can cancel permits, licenses, and registrations. Provide written notice of the closing date in advance so the agencies can process the information and issues a refund, if available.
6. File Final Tax Returns And Pay Taxes
Prepare and file final tax returns for the company. Final tax returns also include payroll forms. Note “final” on all tax returns and forms filed with the state and the federal government. If you are a sole proprietor, you can file your final Schedule C when you file your personal tax returns for the current year.
7. File Dissolution Documents
Depending on the type of business, you may need to file formal dissolution documents with the state. If you have questions about whether you need to file dissolution documents, talk with your attorney. In some cases, if you do not formally dissolve a company, you could be personally liable for taxes and filings until the company is formally dissolved.
Contact Our Maryland Business Attorney for Help
Throughout the process, maintain adequate books and records. If you are audited or sued, detailed records of the business closure will be useful in defending your actions. Consulting a Maryland business attorney can help you avoid errors and make closing your business less stressful.
