If you’re shutting the doors on your business, you may have some preconceived notions about what that process looks like. It’s important to get a clear understanding of what closing a business entails so that you can make a clean break and move forward.
Here are 5 common myths about closing a business.
1. You Don’t Need to Formally Close Your Business
Simply shutting down your website and stopping orders should signify that your business is done, right? Wrong. If you don’t take formal steps in closing your business, you can still be charged fees and be required to submit tax returns to the IRS, as well as an annual report to the state. Find out what your specific city or region requires in order to close a business.
2. Your Business Structure Will Go Away if You’re Inactive
Contrary to what many think, your LLC or corporation will continue to exist until you formally dissolve it by filing your Articles of Dissolution. The government will continue to consider your business entity alive and kicking, and charge you taxes and require you to fill out paperwork until you notify the proper authority that you’re no longer in business.
3. You’re Not Responsible for Any Business Debt Once You Shut Down
You absolutely are fiscally responsible for any outstanding invoices or debts you owe as a business. If you don’t have the money to pay your creditors, unless you’ve set up a business structure that separates you from your business (such as a corporation), you may be personally responsible to pay those debts. You may consider bankruptcy at this point, if your debt is too great.
4. You Can Do What You Want with The Remaining Money in the Bank
If you have business partners or shareholders, that money is legally theirs, and you must divide it up amongst them. Even if there weren’t laws about this, it’s simply good business to do your best by those that supported you and your company.
5. You Won’t Owe Taxes Once You Close Your Doors
Before you take that money you’d set aside to pay your annual taxes and spend it on a blowout holiday, read on: you are responsible for paying any taxes you accrued while you were in business. Whether you shut down your business in January or December, you will owe payroll and sales tax for the months your company was still in operation, even if it’s not now.
Close your business the proper and professional way to avoid penalties, fees, and overall upsetting the apple cart.
Nellie Akalp is a passionate entrepreneur, small business advocate and mother of four. As CEO of CorpNet.com, a legal document filing service, Nellie helps entrepreneurs start a business, Incorporate, Form an LLC, or set up Sole Proprietorships (DBAs) for a new or existing business. She has formed more than 100,000 corporations and LLCs across the U.S., building a strong passion to assist small business owners in starting, running, and protecting their small businesses the right way.