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How to Dissolve a Company

Businesses close down for many reasons, including financial difficulties, the retirement of an owner, and disagreements among partners. If you are considering dissolving your business, you should understand the steps involved and the process for liquidating assets.

Steps for Closing a Business

The organizational documents for your company, depending on the business structure, may play a role in how you close down. If you’re a sole proprietor, you can make the decision on your own with no need for consultation with board members or business partners.

You also won’t need to file paperwork with the state to close down a sole proprietorship. However, you still will need to tie up loose ends with creditors, vendors and customers.

All businesses, regardless of structure, are required to pay any remaining tax liabilities for the current year and prior years. You also will need to file all final tax forms for the business, including those for payroll and sales taxes. Some federal tax forms, including your unemployment tax return, include boxes to check to indicate a final return being filed.

Be aware that if you have unpaid payroll taxes when you close the business, you can be held personally liable; the IRS can go after your home, car and other personal assets to meet the tax obligation.

You’ll also need to cancel your business licenses with the state of New York and your local municipality, and you should inform your vendors and suppliers that your business is closing. Corporations are required to inform their creditors that the company will dissolve, along with providing a mailing address and deadline for sending claims. Your business attorney can assist you with settling any claims and collecting outstanding amounts owed to the business.

Dissolution of a Corporation

The process for dissolving a corporation in the state of New York involves the New York Department of State and the Tax Department. By voluntarily dissolving, a corporation ceases its obligation for paying future fees and taxes to the state.

Dissolving a corporation involves two steps:

  • Receiving written consent from the Tax Department. The department determines if the corporation has filed all required returns and if it owes any taxes for prior years.
  • Completing paperwork including a Certificate of Dissolution and filing it with the state.

To receive consent from the Tax Department, you will need to file the final corporate tax return for your business, designate it as the final return and pay any remaining liability. Your attorney can assist you with your final tax return and with preparing a Certificate of Dissolution and filing it with the New York Department of State.

Dissolution of a Partnership

Before dissolving a business partnership, you should first review the options and responsibilities laid out in the partnership agreement. If you worked with an attorney to create a partnership agreement, it likely includes a process for dissolution of the partnership.

If one partner wishes to continue running the business outside the confines of the partnership, you may choose to either sell your ownership in the business or purchase your partner’s ownership. Before selling or purchasing, consult with an experienced business attorney to ensure that your rights are protected.

If you do not have a partnership agreement that lays out a dissolution process, you’ll need to follow the default provisions under New York state law. The partners will need to reach agreement about who pays outstanding debts, and you’ll need to determine how to fairly divide any assets.

In most cases, you can dissolve the partnership by giving written notice of your intent to your partners. General partnerships in New York are not required to file any paperwork with the state to dissolve. You should notify your creditors, vendors and customers, and you’ll need to file final tax forms and pay any outstanding tax liabilities.

Liquidating Assets

If your business has assets that you wish to liquidate, you may need to notify creditors and get their permission before acting. Additional steps to prepare your assets for liquidation include:

  • Compiling an inventory of all business assets, including photographs, serial numbers and descriptions of items. The IRS or state taxing officials may later require this documentation.
  • Working with a qualified appraiser to establish the value of items.
  • Determining the best method for liquidation — for example, a public auction or online sale. Competitors, suppliers and others in your industry also may be interested in purchasing assets.

Protect Yourself in a Business Dissolution

If you’re considering a business dissolution, working with the right attorney is critical for protecting your interests. The process can be stressful, but you’ll gain peace of mind from having a sound shutdown plan in place. To consult with an experienced business attorney, please contact Gertler Law Group, LLC.