- March 24, 2021
- Kelvin Birk
- Business Law
“Do you need a lawyer to dissolve your business?” This question is frequently raised by business owners as they make the difficult decision to cease operations and move in a new direction.
Honestly, closing a business is complicated. There are always multiple “stakeholders.” It is important to ensure that each is treated appropriately. Also, as a business owner, you must abide by all relevant state and local laws, file very specific paperwork, and position yourself well for the future. So, do you need a lawyer to dissolve your business? Quite simply, yes!
Working with a reputable business attorney can help you dissolve your business efficiently and effectively while mitigating future risk.
Understand How Your Business Structure Affects Dissolution
Although the primary actions required to dissolve a small business are similar regardless of organization type, the way in which your business is structured (sole proprietorship, partnership, or corporation) may necessitate additional steps.
While the owner of a sole proprietorship can make the unilateral decision to “shut down,” it is critical to understand that this choice will affect others as well. Nothing happens in a vacuum. Employees, clients, vendors, and relevant government agencies are among those who will be impacted.
A business attorney can help to ensure that no legal details are overlooked.
General partnerships are a bit more complicated. When it comes to the dissolution process, multiple decision-makers participate. Also, closing a business organized as a partnership does not always mean the partnership ends. On the contrary, partnership agreements often encompass more than just a single business. Your relationship and plans for the future will determine your next steps.
Corporations and LLPs
Finally, dissolving businesses with more complex structures in place often requires additional work. That said, these types of businesses may already have plans in place (in by-laws and business agreements) for just this type of situation.
By-Laws and Business Agreements Provide a Road Map
Look back in time: establishing your business was likely exciting. You were ready to leverage an idea, your skills, and your expertise. When your business was created, chances are you drafted by-laws or a formal agreement, a document that formulates the rules that govern your business, including a plan for dissolution, if necessary.
By-laws, which are often prepared with the assistance of a business attorney for a corporation, include valuable information to help determine both how your business will operate and, often, a plan for dissolution.
In the by-laws, details — including the business name, address, and date of incorporation — will be listed along with information regarding the corporate officer positions, their respective responsibilities, and the timing of annual meetings, among other things.
Of course, business owners believe their organizations are well-positioned for a long and successful future, but they are also realistic. They know that life throws us curve balls that often derail even the best of plans. Including a dissolution plan in the by-laws is sensible.
5 Important Tasks in Dissolving Your Business
Once you have reviewed your by-laws or business agreement and have approval (per their guidelines) to dissolve the business, there are several things you, as the business owner, will need to do. The list below identifies some of the major tasks but is not designed to be all-inclusive.
1. File Appropriate Paperwork
Depending upon where your business is headquartered and where you operate (if you have multi-state locations), paperwork may be required for dissolution. A business attorney will help to identify the correct documents (including a Certificate of Dissolution) that need to be filed and will assist in completing them.
2. Alert Your Creditors
Providing notification to creditors is an important step when closing a business. This information should be shared in writing along with a deadline for the submission of final claims. Remember to include a forwarding address for future correspondence so important information does not get lost in the mail.
Your business structure (e.g., partnership or LLC) determines the necessary steps in the dissolution process. Additionally, if the business is incorporated, it may be wise to publish a notice of business dissolution in the newspaper. This limits the amount of time businesses with which you’ve worked can submit claims against your organization. Once again, a business attorney can help draft both the notice and the letter to creditors.
3. Pay Your Debts
Debts your business has incurred will need to be paid prior to the formal dissolution. Make sure you have a complete and accurate list of creditors and outstanding bills.
4. Coordinate with the IRS
Confirming that tax liabilities are settled is a necessary step in dissolving your business. According to the IRS, there are a number of steps required to fulfill your legal tax obligations. Information on their site is helpful, but coordinating with both your business and tax attorneys, as well as your accountant, is advised. Attorney Kelvin Birk is also a CPA and can be an invaluable resource during the dissolution of your business.
5. Manage Your Banking/Business Operations
With regard to this step, “cancel” is the keyword.
All business bank accounts, credit cards, and lines of credit need to be closed.
Additionally, if your business has outstanding permits or licenses in its name, these should be canceled as well. Failure to do this may result in another organization using your name for its operations, possibly leaving you liable for resulting issues. Consider this example. A food truck (Joe’s Hot Dogs) decides to hold an outdoor “food truck festival” with other vendors. Joe applies for and receives all permits. Unfortunately, Joe needs to dissolve his business prior to the event, yet neglects to cancel the permit. The other vendors attend the event but don’t follow town guidelines. Fines are levied. Because the event was held under Joe’s permit, he may be liable for some or all of the damages.
What Happens When a Business Dissolves?
Without a doubt, there is a great deal involved in closing a business. Clearly, you do need a business attorney to dissolve your business.
In addition to the five tasks listed above, other facts may impact the dissolution process. There may be both federal and state regulations, depending upon where your business is headquartered and where it operates, that you would need to abide by during the dissolution process. This is another area where the help of an attorney would be incredibly valuable.
At the conclusion of all of the “closing work,” business owners still have to manage the remaining assets. These should be distributed as designated in your by-laws or business agreement. Be aware that this distribution may result in a tax consequence and require additional filings. This is yet another area where a business attorney can provide advice and assistance.
Engage a Business Attorney Today
Birk Law Firm has a well-known and respected business law practice. Our Missouri-based attorneys are well-versed in local, state, and federal business regulations, experienced in coordinating business dissolutions, and adept at managing any issues that arise both during and after the process. We invite you to contact us at 573-332-8585 if you have specific questions regarding your business and its plans for dissolution.