Overview Of How To Close Down Your Business
You may determine that you no longer can or want to run the business. In that case you may decide that shutting down the business is more advantageous that attempting to sell the on-going operations to someone else. In this case you will need to follow several steps to undo all of the activity you undertook in setting up the business.
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Collect Or Sell Outstanding Receivables
If you have outstanding accounts receivable, youll need to implement a collections strategy. Once you close your business, it can be much harder for you to collect accounts receivable. Other business owners may be less inclined to pay. And their accounting practices may not allow them to pay an individual over a business entity.
But collecting outstanding accounts can get you cash in hand, which can be helpful as you prepare to close. To improve your efforts and your chances of getting paid:
- Make collection attempts before you announce your plan to close the business. Otherwise, customers may stall payments or assume they dont have to pay at all.
- Offer discounts for immediate payments, especially if you have aging receivables. You can increase the discounts as the time of your closure approaches. Sometimes, its better to collect some funds than none at all.
- Instead of just sending collection letters, try calling to collect payment.
- For the accounts you cant collect, consider selling them to a factoring agency. Factoring agencies purchase unpaid invoices at a discounted rate, which can put some cash in your pocket. You wont recoup the total amount owed, but youll receive a percentage of the invoice.
Close Accounts And Credit Lines Cancel Licenses Etc
Do not forget to close all bank accounts, credit lines, and service accounts held in your corporate or business name. You will want to terminate all licenses, permits, and/or permits for fictitious name too.
Finally, be sure you notify all customers and vendors about your corporations dissolution.
If you undertake each step properly, you will successfully close your corporation.
About the Author
Rebecca DeSimone, Esq.
Originally from upstate New York, Rebecca DeSimone is an attorney who practiced law in Western Pennsylvania for over twoRead more
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Settle All Tax Accounts
Settling tax accounts may be the most procedurally daunting part of winding down a business. You must account for capital accounts, distributions, employment taxes, etc.
See for a description of the various final tax filing requirements. I recommend searching your states Department of Revenue website for information on closing state tax accounts.
File A Final Return And Related Forms
You must file a final return for the year you close your business.
The type of return you file and related forms you need will depend on the type of business you have. A limited liability company is a business organized under state law. An LLC may be classified for federal income tax purposes as a partnership, a corporation or an entity disregarded as separate from its owner.
- A sole proprietor is someone who owns an unincorporated business by themselves.
- A partnership is a relationship between two or more partners to do trade or business.
- A corporation is a separate taxpaying entity with at least one shareholder. This includes S corporations.
You must also provide a Form W-2, Wage and Tax Statement, to each of your employees for the calendar year in which you pay them their final wages. You should provide Forms W-2 to your employees by the due date of your final Form 941 or Form 944. Generally, you furnish copies B, C and 2 to the employees. You file Form W-3, Transmittal of Income and Tax Statements to transmit Copy A to the Social Security Administration.
If your employees receive tips, you must file Form 8027, Employers Annual Information Return of Tip Income and Allocated Tips, to report final tip income and allocated tips.
Pension or Benefit Plans
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Tax Obligations After Closing Your Business
When closing a business, there are many steps which must and should be taken, and taking care of any tax obligations is right at the top of the list in order to prevent and issues from occurring in the future.
The Canada Revenue Agency has very specific guidelines regarding closed businesses so its important to keep those rules and regulations in site on the off chance that they may be needed.
Notifying Vendors And Creditors
You should let creditors and vendors know about your decision to terminate the business in writing. Indicate the plans for paying your final debts, finishing projects, and fulfilling contracts. The notification should include the final date you plan to operate your business, the final service date, and a copy of your agreement or contract with the individual or business.
If your client or vendor contract indicates, you may want to ask them to sign off on the letter to avoid breach of contract claims down the road.
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How To Dissolve A Sole Proprietorship
The dissolution of a sole proprietorship involves the following steps:
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Start A Sole Proprietorship Or Partnership
To conduct business as a sole proprietorship or partnership, you need to reserve a business name and register the business.
If you’re going to do business under your name, you do not need to request a business name or register the business with the province.
OPTIONAL: If you’re not sure which business structure you should choose,consider the different business structure options available. You may also want to:
- Explore resources from the Small Business Branch or Small Business BC
- Get advice from a chartered accountant or lawyer before setting up your business
Request and reserve a business name online
Businesses must have their name approved and confirm that it doesn’t conflict with a name already being used by a corporation. Only incorporated companies, cooperatives or societies can guarantee exclusive use of their name. Find out how to choose the right name.
If you’re unable to submit a request online, complete the Name Request form and mail it or drop it off at a Service BC locationwith payment. Make cheque or money order payable to the Minister of Finance.
It takes about 7 to 14 days to process a name request.Once it’s complete, you’ll receive a confirmation email and a name request number you can use to register your business. Be sure to complete the registration before the name request expires . If not, you’ll need to submit another name request. Request priority service if you need to have a name approved in 1 to 2 business days.
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Notify Creditors And Pay Outstanding Debts
Youll need to pay any outstanding debts and inform your creditors that youre closing your business. Some laws govern how you should do this. Otherwise, here are some general guidelines to keep in mind:
- Inform unsecured creditors and suppliers right before you close. Try to time this notification so that you can continue to receive the inventory and supplies you need up until the moment you close.
- Manage bank loans carefully. In some cases, as soon as you inform your bank that youre closing your business, they may deduct your loan balance from your business bank account.
- Sole proprietors and partnerships can send a letter to creditors, telling them youre closing and asking for a final bill. Your creditors will have a certain amount of time to file a claim against you for unpaid debts.
- LLCs and corporations can send notification letters to creditors as well. Research your local laws on when creditors must submit their claims and include this information in the letter.
How To Close Proprietorship Firm In India
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When Can A Sole Proprietorship Legally Be Dissolved
When can a sole proprietorship legally be dissolved? This is an essential question as the legal status of a sole proprietorship business can be vague.3 min read
When can a sole proprietorship legally be dissolved? This is an essential question for entrepreneurs as the legal status of a sole proprietorship business can be vague.
Reasons For Closing A Gst/hst Account
When you close your account, you need to tell the Canada Revenue Agency why you no longer need a GST/HST account.
Your cancellation date is the day your business ends.
You may be able to jointly elect with the purchaser to have no GST/HST payable on the sale of your business, or part of your business, if you meet the conditions for making a joint election.
The purchaser must acquire at least 90% of the property necessary to carry on the business as a business. This election cannot be used if you are in the following situations:
- you sell only individual assets of your business
- you are a registrant and the recipient is not
Any property not acquired under the agreement, but that the recipient needs to carry on the business , has to fall within the remaining 10% of the fair market value of all the property acquired.
For more information, see Selling a business.
If your total taxable revenues fall below the small-supplier limit calculation amount, you may decide to deregister your GST/HST account. In this case, you need to be registered for at least one full year before you ask to close your account. However, if you are either:
- a taxi operator or a commercial ride-sharing driver, you must register and remain registered for GST/HST, even if you are a small supplier
- a non-resident performerselling admissions to seminars and other events, you must register and remain registered for GST/HST, even if you are a small supplier
Usually, your BN will be closed after the discharge.
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Notify The Internal Revenue Service
Once you sign and file the dissolution forms with the state agency, you should next notify the Internal Revenue Service to inform the agency your intended company dissolution.
It is important to pay all taxes due, both to the state and to the federal government in order to obtain a “consent to dissolution” or a “tax clearance.” Generally, these forms are required by the Office of the Secretary of State to obtain formal dissolution of a corporation. On the state and local tax return documents, mark the box, “Final Return.”
What Happens If One Business Partner Wants To Cancel And Another Does Not
If you have a Firm Name for a General Partnership, previously called a General Partnership, registered and one partner no longer wants to operate the business, you have two options. You can file an amendment to remove the partner who no longer wants to be involved as long as two or more partners remain on file. If only one partner remains, you can either add another partner to replace the one leaving or cancel the General Partnership and register as a Sole Proprietorship using the same business information.
Corporations can operate with a single director, so business owners can be removed if they no longer wish to be a part of the business as long as one director remains. A Notice of Change can quickly and easily update the directors of a corporation on file. To completely remove a partner and protect all parties from any risk, liability and access associated with the corporation, it is recommended to file the appropriate paperwork with a corporate lawyer as well.
If you are the one saying I want to close my business and walk away, you will want to ensure you are removed from all registrations and accounts related to the business, in order to remove yourself from all future liability for the business.
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What Information Do I Need To Cancel My Business
To cancel your business registration, you will need to provide the same information as you did when you originally registered. To submit a cancellation of a Master Business Licence, we will need the following information:
- Registration Type
- Business Name
- BIN This can be retrieved if you are not sure.
- Business Activity
The process for filing Articles of Dissolution for a corporation can vary, depending on the jurisdiction of incorporation. For corporations incorporated in Ontario, the Articles of Dissolution under the Business Corporations Act are required. Within the articles, you must provide whether the corporation has issued shares and that the dissolution is authorized by the shareholders of the corporation or that the corporation has not commenced business. Secondary to this, you also must provide if the corporation has no debts, obligations or liabilities and if the corporation does, the corporation has provided for its debts and where creditors are involved, consent to dissolve has been given. If the corporation has any property, confirmation needs to be provided that the property has been distributed to its shareholders, that there are no pending court cases, and that all notices and returns required under the Corporations Information Act are up to date.
If you are filing the Articles of Dissolution directly with the Ontario government, you must first obtain a Company Key for your corporation.
How To Dissolve A Sole Proprietorship Business
Related
An easily structured sole proprietorship operates as an extension of the business owner. The U.S. Small Business Administration explains that the sole proprietor enjoys the businesss profits and bears responsibility for its operating losses and debts. When a business owner is closing a sole proprietorship, following these general guidelines streamlines this relatively simple process.
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Close Your Gst/hst Account
If your business makes more than $30,000 a year, it collects GST/HST taxes and forwards these payments to the CRA. If your business makes less than $1.5 million, the funds are remitted annually. If revenue is between $1.5 million to $6 million, you pay quarterly and anything above $6 million, you pay monthly.
Regardless of how much money your business makes, you need to account for and pay any outstanding GST/HST amount to the CRA immediately after closing the business. Doing so entails making two separate calculations: one is for the amounts owning on non-capital property and the second is for the amounts owning on capital property.
Capital property includes most investments, such as land and buildings. Non-capital property includes every other kind of commercial goods and property such as computers, printers, servers and supplies.
Deal With Taxing And Licensing Agencies
Find out whether your business owes any federal or state taxes and pay whatever you owe. In some states, you’ll need a document confirming you’re up to date on all your state taxes before you can file articles of dissolution.
Other tax and license issues you may need to address include:
- File final state and federal income and employment tax returns.
- Cancel any “dba” registrations with the agency where you filed them.
- If you have a general business license or specific licenses related to the kind of business you’re in, cancel them.
- If you’re registered to do business in other states, contact those states to find out how to unregister a business.
In addition, cancel state sales and unemployment tax registrations.
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Closing A Sole Proprietorship
Created by FindLaw’s team of legal writers and editors
Closing a sole proprietorship is different — and typically much easier — than closing a corporation or partnership. For the most part, sole proprietors do not have to consult with anyone else before deciding to call it quits. However, sole proprietors still have responsibilities and obligations to tend and also may have outstanding loans to pay off.
Below, you’ll find a detailed hypothetical about starting and closing a sole proprietorship, followed by examples of closing a corporation or partnership. By comparing and contrasting, you should get a better understanding of how the process works.
How To Close A Corporation
Closing a corporation and winding up business operations is known as “dissolution,” and the process requires several steps.
Often, the aid of a lawyer or the assistance of a tax professional is helpful.
Certainly, you may informally dissolve a company by ceasing all business action. However, this option is not the best , because it opens you to potential lawsuits and later liability.
Do not presume that the corporation is ended upon your halting of business operations. Legally speaking, the corporation continues to exist as a business entity regardless of whether or not you continue to conduct business operations.
Keep in mind, the State continues to expect the corporation to fulfill and to comply with all legal requirements until the time that the corporation has been dissolved formally.
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