This year has been economically challenging for everyone. This leads to the unfortunate reality that not every business is going to survive 2020.
Unfortunately, this does not mean that every owner can simply lock their doors and walk away. Instead, they may need to avoid creating more problems for the company by planning a smart exit strategy.
Important considerations
While sole proprietors may simply close their business, other types of businesses like partnerships, LLCs or corporations will need to follow the guidelines of the state where the company is registered. Here is a short to-do list for those who need to shutter their business:
- Vote to dissolve: The owners of the entity must agree to dissolve the business, which is part of a path outlined in the articles of organization.
- Put a dissolution team together: This should ideally include a CPA, business valuation expert and an attorney.
- File dissolution documents: The failure of an LLC or corporation to file these documents exposes them to ongoing tax and filing requirements.
- Take inventory: This helps put a value on the company and enables the owners to file their final tax returns.
- Set a timetable: This enables owners and employees to perform obligations within a reasonable time frame.
- Make the public announcement: This enables the company to work with vendors and customers to find new alternatives for their business and negotiate final payments.
- Dispose of assets: This can help pay off remaining debts, but it is also a good time to cancel business insurance coverage.
- Prepare final tax returns: Both state and federal tax returns will need to be filed. These are not the standard forms, so owners may need help with this step.
- Keep records: The owner will need to hold onto business documents for seven years in case the IRS audits the business.
The paperwork is complicated
The dissolution team must take care of all the necessary forms for registering the business and licenses, as well as notifying any government agencies that need to be informed. Not tying up these loose ends can lead to problems down the line, perhaps when it comes time to launch a new endeavor.
