Whether you’re looking to retire or begin a new business venture, you may be in the situation where you need to close an existing venture. It may seem easy to just walk away, however, there are a variety of legal requirements that may make the process seem daunting at first. Here are a few important factors to keep in mind when closing your business.
Agree to Close the Business
Some businesses may need to formally decide to close the business. This is dependent on the business type and will vary whether it is a sole proprietorship or another business type. LLCs and corporations, in this case, follow the same guidelines.
Sole proprietors are allowed to make the decision to close their business on their own. Owners of a sole proprietorship can simply follow along with the necessary steps for business dissolution.
LLCs and Corporations
Voluntary dissolution of an LLC or corporation has more rules and regulations than a sole proprietorship. These rules are typically found in a company’s formational documents. If you own an LLC, you are covered under North Carolina’s LLC Act for an alternative route. So long as there is unanimous consent among all LLC members, there is no need to follow the procedures outlined in the formational documents. Either way, this decision requires written documentation to be valid.
File Dissolution Documents
Businesses registered in North Carolina will need to submit the required forms in order to proceed with the dissolution. If the company does not have any shareholders, they can file Articles of Dissolution Prior to the Issuance of Shares. Companies with shareholders, on the other hand, must file Articles of Dissolution by Board of Directors and Shareholders.
Without legally dissolving your business, you may have to pay additional taxes and fees associated with filing requirements. As such, filling out the necessary paperwork is vital for a smooth dissolution process.
If your business is also registered in other states, you will need to follow those states’ regulations in order to close your business. Without this process, you may continue to incur fees and taxes from these states. Be sure to look up each state and fill out their required forms.
Cancel Any Business-Related Accounts
When closing a business, you’ll need to close anything related to the business as well. This includes registered names, permits, licenses, and so on. You will also need to send a letter to the IRS in order to close your business account.
Resolve Any Outstanding Obligations
Taxes are conducted according to the IRS and are done in the calendar year the business is dissolved in. Companies must make final tax payments and list that it is their final return on their tax form. If for some reason there were issues with withholding income, Social Security, and/or Medicare taxes, these issues will need to be resolved as well. Otherwise, the IRS will issue the Trust Fund Recovery Penalty, which charges unpaid taxes plus interest. This is issued in cases of willful tax evasion only, however.
State taxes must also be resolved as well. While you do not need tax clearance to dissolve a business in North Carolina, you will need to pay any outstanding taxes regardless. It is better to complete this process sooner rather than later.
You will also need to resolve employee payments. This has to be done within a certain timeframe, as The Worker Adjustment and Retraining Notification Act (WARN) requires that companies give a 60-day layoff notice to employees if they have over 100 employees. This has additional stipulations as well, so be sure to consult your business attorney for additional guidance on this. You will also need to give employees their final paycheck.
Notifying Creditors and Claimants
You should also notify creditors and other claimants. While this is not required per North Carolina law, it is recommended. You can either notify them through direct written notice or publish the notice in a newspaper. Either route has certain regulations and procedures, so it is highly recommended that you consult your business attorney on this matter.
Business owners must also keep records following the dissolution. It often takes years before these documents can be safely discarded. The IRS recommends keeping records of employment taxes for at least four years, although you may have to keep the documents longer. Ensure all documents are in a safe and accessible place post-dissolution so you can access them if needed.
Our North Carolina Business Attorneys Can Help
At Wilson Ratledge, we have over 60 years of experience helping business owners from formation all the way through exiting their businesses. We understand that no two businesses are the same, and we treat your situation with the attention and expertise you deserve. Contact us today to schedule a consultation with one of our North Carolina business attorneys to make sure your business dissolution goes according to plan.