Closing Down Your Business Permanently

If you're shuttering your business for good, there's more to it than drawing the blinds.

Q:I'm preparing to close the doors on my S corporation. What arethe legal steps I need to take?

A:When closing a business that involved registration or formationthrough the state government, it's important to file the rightpaperwork and perform the right steps in closing the business. Besure to follow these steps:

1. Read your formation documents. Review yourbusiness's legal formation documents to see if your businesshas set forth any procedures for its termination. For acorporation, you would look in the articles and bylaws, minutes,shareholder agreements and so on; for an LLC, you would consult theorganization agreement or other formation or corporation proceduredocuments. Prior to filing anything with the state, be sure thatyour business has complied with any steps expressly required inyour formation documents. Additionally, some states have statutoryrequirements that your business must follow prior to terminating.Especially in the cases of LLCs, partnerships and other entities,these rules can be tricky, so it's best to consult a businessattorney.

2. Settle your debts. If you have unpaid business debts,you'll need to consult with your accountant and attorney priorto ending your business to wrap up dealing with those creditors viabankruptcy, payment notes or other means.

3. Check with your state on how to dissolve the business.In the state in which you legally formed your business, yourcorporation is a domestic corporation--meaning one created in thatstate. You must file forms for dissolution of your business withthe state in which it was legally formed. You can find forms fordissolving domestic businesses on the Web site of the stategovernment entity (usually the Secretary of State or the Departmentof Corporations) with which you filed your business's formationdocuments.

In most states, prior to terminating a business, you must haveobtained proof from the state tax office that the business has paidall the taxes owed. Therefore, often you have to file forms withthe state tax office prior to, or concurrent with, your dissolutionpaperwork.

4. Withdraw or dissolve the business. Typically, endingbusiness by a foreign corporation is referred to as"withdrawing," while ending business as a domesticcorporation is referred to as "dissolving." A state inwhich your business is legally "doing business"--has anoffice, salespeople and so on--but is not your business' stateof legal formation means that your corporation is a foreigncorporation in that state (a corporation formed outside it).

To what degree activities constitute "doing business"in a state is a difficult question that's determined by statestatute and case law. However, if your office has an office in astate, you are almost certainly doing business there, and yourbusiness should have registered to do business as a foreigncorporation when it began such activities. If you did not do so, besure to consult an attorney about the proper steps for withdrawingor ending your business in the state prior to any filings, as therecan be penalties for failure to have registered.

As with dissolution, the forms for withdrawing are available onstate Web sites, and you usually must obtain tax clearance priorto, or concurrent with, withdrawal.

Note: The information in this column is provided by theauthor, not Entrepreneur.com. All answers are general in nature,not legal advice and not warranted or guaranteed. Readers arecautioned not to rely on this information. Because laws change overtime and in different jurisdictions, it is imperative that youconsult an attorney in your area regarding legal matters and anaccountant regarding tax matters.


Judith A. Silver, Esq., is the CEO and founder of Silver LawInc., a technology and business law practice, and Coollawyer Inc., a legal publishingcompany on the Web. Prior to starting her companies, she served asin-house counsel at Adobe Systems and Sabre/Travelocity.com. Sheholds a bachelor's degree cum laude from CornellUniversity and her juris doctorate from the University ofCalifornia, Hastings College of the Law, in San Francisco.

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