Attorneys Stephen Korshak and Lee Karina Dani

Protecting yourself while dissolving your business

On Behalf of | Apr 15, 2020 | Business Law |

Over time, every business reaches the end of its life cycle, and the owners of the business must take the proper steps to dissolve it. Unfortunately, dissolving a business poorly can create lingering complications for the owners and for others involved in the business’s activities.

If you believe it is time to close your business down, it is important to protect yourself and others during the dissolution process. With a strong legal strategy and a clear understanding of the steps you must take to comply with the law, you can cleanly close your business and keep your rights secure throughout the process.

Consulting your business articles

In most cases, closing a business should begin with consulting its business articles to identify how the writers of the founding agreement intended to dissolve when the time comes. However, some types of businesses do not need to spend much time on this step.

Sole proprietors do not have anyone but themselves to consult about dissolving, so this typically does not apply to sole proprietorships. Likewise, if a business is a partnership that does not have a written agreement, then one partner only needs to notify the other partner of their intent to withdraw from the partnership. It is wise to protect oneself by notifying the other partner in writing.

Other partnerships, LLCs and corporations should follow the guidelines of dissolution in their documents.

Filing dissolution

Properly closing a business involves filing proper dissolution forms with your state, cancelling your business licenses, and notifying the IRS and your local tax agencies. It is not always easy to navigate these filing processes, so be sure to use strong legal resources as you complete each one. Failure to complete these steps of dissolution can create major headaches for owners later on, so they are important to prioritize.

Dissolving your business also involves notifying your creditors and settling any outstanding claims. Each business’s circumstances differ, but a strong strategy is useful in all cases. Dealing with creditors is often very difficult, so it is wise to prepare carefully.

It is also important to inform any stakeholders in the business of the dissolution. Depending on the nature of your business, this process can also produce lots of conflict, making it an essential part of your legal strategy.

Finally, closing a business must include collecting any outstanding money owed from other parties and assessing the value of the business’s assets. Selling or distributing these assets may be simple or complicated, depending on the nature of the business.

As you build your dissolution strategy, be sure to consider each of these issues carefully. No two businesses operate in exactly the same way, or have the same ownership or business structure, and may differ in hundreds of other ways that impact their dissolution. To protect your rights and the rights of others, be sure to use strong legal resources and careful planning to build a unique, detailed legal strategy to dissolve your business.