Closing A Business

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We Can Help You Properly Wind Down Your Business

When it comes time to winding down business operations and closing your business, it can feel overwhelming. You may be anxious to put the business behind you and move onto other projects. But, before you can do that you need to formally close your business.

There are a lot of steps to closing down a business. If you do not close down the business properly, it can open you up to liability in the future. Avoid future legal and financial liabilities work with our attorneys to properly close your business.

Our business lawyers can help you get your business closed down quickly and efficiently. We will make sure that your future liability is limited and that everything is done properly. We will advise on you what you need to do in terms of record retention and on the best strategies for dealing with everything from shareholder issues to how to deal with creditors.

No matter what your reasons are for closing your business we are ready to help you. Contact us right away to find out how we can make the difficult task of winding down your business easier while also protecting your interests.

Why You Need to Formally Close Your Business

Businesses come in all different shapes and sizes. Some businesses have hundreds of employees, lots of inventory, expensive equipment, with legal, regulatory and financial liabilities. Other businesses are small with very few liabilities. Whether you are large or small, have a lot or few liabilities there are certain steps that must be taken, sometimes in a specific order, to cleanly winddown the business.

If you simply just leave your business and move onto something else it could open you and other stakeholders up to future legal and financial liabilities.

If your business has creditors, shareholders, or employees you will have certain legal duties that you must take care of. Simply announcing you are closing down will not satisfy the legal requirements and may allow others to sue you personally for damages.

You’ll need to notify tax authorities such as the IRS that you are no longer in business to avoid allegations that you failed to properly file tax returns, pay sales tax or other tax obligation You will also want to make sure that nobody else is able to pretend to be doing business with your old corporate name, potentially making you liable for their misdeeds.

Why You Need an Attorney to Oversee the Wind Down Process

Closing down a business is a legal act. Just like creating a corporation, drawing up a will, or entering into a contract, closing a business has legal consequences that can last for years.

It is easy to make a mistake when you close your business and do something that opens you up to legal and financial liability. When you hire an attorney to help you close down your business you are ensuring that no detail will be missed.

Your attorney will also be able to point out issues that, if they go unaddressed, that could put your interests in jeopardy..

You not only need to take the right steps to close your business, but you must also do them in the right order. An attorney can advise you on your best options.

If you may need to file bankruptcy in the future, you will want to make sure you are not doing anything that will jeopardize your future filing.

Even if you are not filing for bankruptcy, having an attorney oversee the closing of your business will help you stay out of trouble with the IRS and other state and federal authorities.

What is Involved in Closing a Business?

When you close down your business you need to make sure that you tie up any loose ends and that you give notice to certain agencies and stakeholders in compliance with the law. Some of the exact steps will depend on what type of business you have and what the corporate form of your business is.

The order of the steps can matter a great deal. For example, a corporation must first have shareholder vote to wind down the business before taking certain steps. Failure to take the right steps, or to take the steps in the right order can make you personally liable to the IRS, creditors, employees, and shareholders.

Generally, you will need to take care of the following issues when closing a business.

Shareholder Issues

Under the law the shareholders must vote to wind down the business. However, you cannot simply circulate an email and get everyone’s responses. Even if you have a closely held corporation, you must hold a formal shareholder meeting. This means giving proper notice of the meeting, taking detailed minutes of the meeting, and meeting all of the legally required formalities.

Only after the shareholders have authorized with winding down of the business should you take other actions to tie up the loose ends.

If you do not meet all of the legal formalities of a shareholder vote you open yourself up to liability from shareholders. Others may claim that your lack of a shareholder vote makes your winding down efforts invalid, or that it is proof that your corporation was a sham and that the court should pierce the corporate veil and hold you personally liable for any obligations of the corporation.

Employee Issues

If you have employees you will need to give them notice of the closing of the business. But, you should not give the notice until you have been authorized by the shareholders. Additionally, under the law you are essentially laying off the employees. This means that you will need to make sure everyone receives their last checks and payouts for any accrued vacation. You can use direct deposit to make these payments.

You will also need to make arrangements to deal with any retirement account or health saving account transfers.

The timing of the notice to your employees is critical because some employees may stop coming in to work the instant they know the business is closing. However, you may also need to begin scaling back your employees and only retain those essential for the closing down of the business. You will need to plan carefully so that you have enough funds to pay your employees for the work you still need them to perform before you close the doors for good.

You will also want to keep all of your employee records with your other business records even after the business is closed in case there are later legal or tax issues relating to your employees.

Dealing With Creditors

If you have a corporation, you may be shielded from personal liability from the business’s creditors. However, your creditors will still be able to seek payment from any assets left over from your business. Before you “cash out” you will need to make sure and pay off any creditors.

If the assets are not sufficient to pay off your creditors you will need to make sure you have a detailed record of all of your financial transactions, especially those during the closing down process should a creditor later decide to come after you for personally.

If you have made any personal guarantees, the creditors will still be able to come after you personally, even if the business has closed down. You may need to seek bankruptcy protection, depending on your circumstances.

If you do need to file for bankruptcy, the bankruptcy court will want a full accounting of everything you have spent in the winding down process to make sure you are not hiding assets that should belong to the creditors.

Tax Issues

The IRS expects you to make quarterly payroll tax deposits and to file annual tax returns for your business. If you abruptly stop making these filings without giving the IRS official notice that you have closed down the business, the IRS may believe you are just failing to make tax filings.

The IRS can use previous filings to estimate your tax liability and seek payment from you by garnishing your personal bank account or seizing your personal assets. It is critical that you give the IRS notice that you have closed down your business.

If your business still owes payroll taxes or corporate income taxes you will need to pay these obligations as part of the winding down process. If you are unable to meet these obligations you will may need to file for a corporate bankruptcy to make sure everything gets handled appropriately and to minimize your personal exposure and exposure to the shareholders.

You will also want to make sure that the last tax return and payroll tax report are filed on time, even if it is after the business has closed.

Bank Issues

You will want to make sure that you close your business bank accounts to prevent future fraud. However, before closing your accounts you want to make sure that all of the checks and ACH withdrawals have cleared the account.

If you have cash left in the account, you will need to make sure it is distributed appropriately. The cash may need to be first paid to the IRS or creditors before being distributed to any shareholders.

File Paperwork With State

Most of the time you will want to file formal paperwork with the state to notify them that the business has closed down. This will also serve as notice to unknown creditors that your business is no longer authorizing any transactions.

Formally closing the business by filing paperwork also prevents scam artists from trying to conduct business or commit fraud under your dormant corporate name.

Business Records

After the business is completely closed down you will need to keep all of your business records for at least seven years. This includes employee records, tax records, financial records, annual reports, shareholder meeting notices, and shareholder meeting minutes.

These records need to be kept somewhere safe and someplace where they can easily be accessed if you need them for a legal or tax matter in the future.

Get a Free
Initial Consultation

At Walsh Banks Law we have the knowledge and experience to help you properly wind down your business, reducing risk and liability. And giving you peace of mind that once the business is closed it is closed. Give us a call at(407) 259-2426 or click the button below to schedule a free consult.

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