top of page

When It’s Time to Close the Doors: Dissolution FAQs

A number of people have called recently with questions about closing their businesses. This breaks my heart, but I thought it would be a good time to review what needs to be done to close a North Carolina business properly, regardless of its longevity.

How do I close my business? If you formed an entity, you must vote to dissolve the company, pursuant to your bylaws, operating agreement, partnership agreement, other operating documents or appropriate statute.

Then you can: 1) file Articles of Dissolution with the Secretary of State for your LLC or corporation yourself, 2) have an attorney prepare and file these for you or 3) just stop filing your annual reports with the Secretary of State. After a while, the company will be administratively dissolved.

It is best to plan ahead by figuring out how much money is left, what is owed and how you want to distribute what is left. Who are you going to notify? How? When?

You'll need to inform lenders, insurers, suppliers, vendors, and service providers that the business will no longer be contracting for their services and give a method as to how the company intends to wind up its business with those creditors.

Is there something I need to do with the Department of Revenue? Some states require a tax certificate or tax clearance document indicating that the entity is current on its state taxes before it is allowed to be dissolved, but North Carolina does not require this. If you are a sole proprietor or a general partnership, you can simply stop doing business.

A corporation that is inactive or has no assets must still pay a minimum franchise tax of $200.00 and must file an annual tax return, even if there is no activity. Tax returns are required through the date of formal dissolution or withdrawal through the Secretary of State. This is true even for entities that have filed bankruptcy.

What about employees? If you have employees, make sure you are current on salaries and withholdings. Remember the owners and officers are personally liable for the payroll taxes, even after dissolution or bankruptcy. You may want to pay severance to your employees. Review whether you are required to pay unused time off and how to handle other benefits. Businesses with more than 100 employees must give notices before shutting down. If you have retirement and health care plans, talk to the plan administrators in advance.

What about creditors? There is a process in North Carolina law for notifying known and unknown creditors and cutting off the time for their claims. It includes publishing a notice in a local newspaper. This process doesn’t get rid of money you owe, but shortens the time frame for a creditor to bring a claim against your company. This streamlines the liquidation/wind-up process.

What about losses? Check with your accountant, but owners of eligible small businesses may be able to amend their personal or company tax returns for the previous 5 years to apply certain losses against income earned during those years.

Do I need an attorney? If you have signed any contracts (and especially if you have given personal guarantees), it is wise to work with an attorney to dissolve the business to protect the owners from personal liability. There are some additional steps we can take to protect the company and its owners from the creditors of the business by shortening the time in which creditors must file a claim for payment. We can also negotiate to get you out of contracts early.

It also may be beneficial to review whether a bankruptcy filing would be a good idea. It is possible to close down the business operations, but keep the entity active so that it is available for a future activity. This does require some risk/benefit analysis from your accountant and attorney, and would be most appropriate for a fledgling business than one with business activities.

What else should I do?

  • Collect all outstanding receivables so you can distribute to creditors.

  • Cancel all services.

  • Cancel all licenses, registrations and permits.

  • Cancel insurance policies, but make sure of coverages first.

  • Pay all taxes and debts.

  • Notify creditors, employees and customers.

  • Sell your inventory, equipment or other assets.

  • Close all bank accounts in the business name.

  • Withdraw your assumed name (dba).

  • Keep your records in an organized manner for at least seven years.

Note that the federal tax identification number (EIN) for your business does not get cancelled, and will be in existence even after you dissolve the company.

While these steps may sound simple, the process will be very emotional, and a mis-step can make it that much worse. If there are significant assets and liabilities, money on professional advisors will be well spent.

Featured Posts
Recent Posts
Search By Tags
Subscribe To and Follow Direct Talk
RSS Feed
bottom of page