Change is inevitable, and it doesn’t always come when you expect it or plan for it. If you are at a turning point in your life, you may be facing numerous changes personally, with your family and with your business. If it is time to close the doors of your business, whether physical or virtual, you should know that it is not always as simple as not showing up for work tomorrow.
The dissolution of a business can be a complex legal process that you should take step by step, ideally with a legal advisor at your side. Each step is critical, and missing any part of the process may result in costly consequences, particularly involving taxes and financial penalties. Of course, each business is unique, and different industries will have their own special requirements for dissolution. However, it may help to know the general steps you will be taking.
Not a simple process
If you are facing bankruptcy, you will go through a process that is quite different from the dissolution of a business. Dissolution is a procedure for other circumstances. For example, perhaps you are ready to retire. Maybe you cannot resolve a dispute among your partners or shareholders, and so the only course of action is to dissolve the business.
The first thing to do is to review your formation documents, partnership agreement or other contracts. There may be important procedures you must follow before you can proceed. Then you will likely take the following steps:
- Make sure you have the approval for the dissolution from your partners and all shareholders.
- File a notice of dissolution if you registered your business in Pennsylvania.
- Draft a formal resolution of dissolution, which will provide evidence that all parties involved agree with the decision to dissolve the business.
- Plan the process of liquidating any assets, including paying the business’ debts and how this will affect your shareholders.
- Notify tax authorities and follow their instructions for paying final employment taxes, canceling your employer ID number and other tasks.
- Pay your vendors and any other parties to whom your business owes money.
- Pay your employees their final paychecks.
There are likely other details to attend to. You may have to break your commercial property lease or cancel any professional licenses or permits your business requires. It is wise to take some time at the beginning of the process to organize and delegate these tasks. However, you will not want to leave any of these steps to others without making sure they complete them thoroughly and correctly, and that you are in compliance with all relevant laws.
