Closing Up Shop? Avoid Fines and Lingering Liability by Dissolving Your Business
by JimD, Former Moderator
- Created: August 24, 2010, 10:21 am
After selling your last piece of merchandise, closing your doors for the last time, and paying off all your debts you may think the process of closing your business is done. However, it is extremely important to officially dissolve your business with your state and local government to avoid some severe consequences.
Plan Your Exit
Are you planning on closing your business for a temporary period of time or long-term/forever?
- Temporary period. If you are suspending your business for a temporary period of time due to a life change, health reason, or any other reason, you do not need to dissolve your business. However, you will need to file all the time-sensitive materials as usual to avoid penalties or late fees. Restarting Your Business can be an easy process if you are prepared.
- Long-term or forever. If you are closing your business long-term or forever, it would be better to dissolve your business to protect yourself.
Even if your state or business structure does;t require that you formally dissolve your business, it is still a good idea to notify your state government and creditors. If you business is a sole proprietorship or general partnership, deciding to close can be very easy. However, if your business is registered as an LLC, S-Corp, or cooperation closing your business is a multi-step process. Business.gov has put together a 7-Step Checklist to Closing Your Business which serves a guide for all businesses, regardless of structure, and details how to resolve financial obligations, cancel licenses and permits, and inform employees of your plans.
Possible Consequences if Your Business is Not Dissolved
Officially closing or-dissolvin- your business may involve some costs, such as administrative fees, and paperwork - similar to the requirements for starting a business. While it may be tempting to forgo official dissolution of your business, by doing so you leave yourself open to fines, fees, or continued liability.
- Tax Filing Penalties and Fees. Most tax forms have fees and penalties if they are submitted late. By not formally dissolving your business, the IRS and state governments will be expecting those forms and will apply the penalties if they are not received on time. If you receive any notices of failure to report and you have properly dissolved your business, contact the applicable agency (your state revenue department or the IRS) and resolve the issue as soon as possible. Ignoring the issue will potentially make it worse by compounding fees and late penalties.
- Annual Reports. Similar to tax reporting, some states require business file annual reports to the stat's Department of Revenue or State Department. By not officially dissolving your business, you may be held responsible for all penalties or fines for late or missing filings, even after your business ceases operations.
- Future Product Liability. A business that is not dissolved is at risk of continued product liability. General product liability claims are usually design defects, manufacturing defects, or marketing defects. Marketing defects refer to inadequate warning labels or instructions.
Protect yourself by properly dissolving your business when you decide it is time to close up shop and move on. Dissolution of your business may take some time for all the paperwork submitted and get the proper approvals. Remember to keep records from your business for at least 3 to 7 years.
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