How Business Dissolution Works

A business owner can’t just put a “closed” sign on the door and be legally considered out of business. Owners must take a legal and administrative step known as “business dissolution.” Sometimes this may even be forced on a company by local authorities. Here’s how to do it and restart it, known as business reinstatement.

Corporate Requirements

If a business is registered as a corporation or LLC, in the same way it was required to file Articles of Incorporation or Organization to start the business, owners must now get a certificate to close it. Depending on the business state, this may be called a certificate of dissolution or certificate of cancellation. Filing articles of dissolution notifies the secretary of state’s office that the business is officially closing. Once filed, it is no longer a registered business, and owners aren’t required  to pay taxes on the business or file annual reports.

If owners fail to acquire a certificate of dissolution through the state, the state will consider the company still in operation and expect annual reports and taxes to be paid.

How To Dissolve

Business dissolution requires taking certain administrative steps, including:

Taxes

All business taxes must be in order including annual tax returns, employment tax returns, and final federal tax deposits. Capital gains/losses must also be reported as well as partner or stakeholder shares if relevant to the business.

Licenses

Business owners must cancel any licenses or permits that are required to run the business. What licenses and permits the business may have depends on the state and the type of business being run.

Repay Debts

If owners have any outstanding debts for their businesses, business dissolution doesn’t get them off the hook. These debts are still outstanding and must be paid back.

Starting Up Again

Sometimes, a business will be dissolved because owners are unsatisfied with its performance or other success-related factors.In other cases, a company that fails to maintain corporate compliance may get dissolved by local authorities.

If a business owner chooses to dissolve their business, or carry out a voluntary dissolution, most states will not allow reinstatement. Texas is one of the few, allowing for reinstatement following a voluntary dissolution for a small filing fee.

Businesses dissolved through administrative dissolution may be reinstated. This will require businesses to correct any issues that may have caused the dissolution, pay a filing fee, and follow any time limit requirements regulated by the state. For instance, in the state of Georgia, a reinstatement is only allowed if the LLC has been dormant for five years or less.