Dissolution of business could be for variety of reasons for example: bankruptcy, retirement, or a change in career direction. When a business entity is no longer doing business or even if it was never used for anything, it is very important that it follows the legal steps in winding itself up as a legal entity.

A business Corporation, S Corporation or an LLC is an entity created under authority granted by the state. Its existence may only be terminated by the state. The Business Law provides a procedure for dissolving a corporation or an LLC. All legal entities can only be dissolved through formal action, not by a letter or phone call. You remain liable for all taxes, assessments, fines, penalties and interest until you receive a certificate of dissolution from the Secretary of State.

There are typical actions that are taken when closing a business on Federal and State Level:

Federal (IRS)

• You must file an annual return for the year you go out of business.
• If you have employees, you must file the final employment tax returns.
• Make final federal tax deposits.
• File final quarterly or annual employment tax form.
• Issue final wage and withholding information to employees.
• Report information from W-2s issued.
• File final tip income and allocated tips information return.
• Report capital gains or losses.
• Report partner's/shareholder's shares.
• File final employee pension/benefit plan.
• Issue payment information to sub-contractors.
• Report information from 1099s issued.

State (Where your business is formed):

• You must file an annual return for the year you go out of business.
• If you have employees, you must file the final employment tax returns with your State.
• Make final State tax deposits.
• File final quarterly or annual employment tax form.
• If you collect Sales Tax in your State. File final Sales Tax Return.

Why should I close business officially even though I am no longer doing business?

If you will not close your business with the state, your corporation will be considered as a legal entity and accordingly you will be liable to pay taxes and other returns thereof. So it’s highly recommended that you should close your business as per the instructions and rules defined by the state and get your certificate of dissolution.

How can I legally cancel a company?

Canceling a company means you are going to wind up your business. In this connection the first step is to hold a meeting of corporation's board of directors in which they need to propose a resolution for business closing. A vote must be taken and the minutes of the meeting must be recorded and retained in the corporate records. Then that proposed dissolution action must also be approved by majority shareholders.

Secondly, the corporation needs to file Articles of Dissolution with the secretary of state. This filing of Article of dissolution varies from state to state. In some states this is done with a simple certificate while others require a more complex process.

Once you get approval from to state to cancel your corporation or cancel an LLC, then the company’s assets will be distributed to its shareholders. For more detail feel free to contact with InfoTaxSquare. Our experts are pleased to serve you and suggest you the best legal way to dissolve your corporation.

What happens if I fail to officially close LLC / close corporation?

If, for any reason, you do not close your LLC/ close corporation with the state, the consequences can be severe and will take you paying heavy penalties in different areas. Some of the consequences you may be indulged to deal with include the following:

• Personal Liability. Even if you have already stopped your business transactions, legally your corporation, Directors, Officers and shareholders will be still considered as personally liable for the corporation unless you file cancellation legally.
• Tax Liability. Until you get certificate of dissolution, your corporation will be held liable to file all relevant federal, state, and municipal tax returns. Failure to file these returns will result in the heavy penalties and fees associated with the late filing. And many more

If the corporation does not have any shareholder, who will approve the Corporation termination or LLC termination proposal?

If a corporation does not have officers, dissolution must be approved by a majority of the directors in office at the time dissolution is approved. The corporation shall provide notice to directors of a director's meeting where an approval for corporation termination will be sought. The notice must state that the purpose of the meeting is to consider the proposed business termination.

Is it necessary to notify every member about the boards meeting?

The corporation must notify each director or shareholders, whether or not entitled to vote, of the proposed members' meeting. The notice must state that the purpose of the meeting is to consider dissolving the corporation.

When Will the Corporation be withdrawn?

The corporation will be withdrawn and its existence ended on the date the Certificate of Dissolution is filed and approved by the State. The Business Corporation Law does not permit the effective date of dissolution to be other than the date of filing of the Certificate of Dissolution by the State.

Who can Sign the Certificate of Dissolution?

The Certificate of Dissolution must be signed by an officer, director, attorney-in-fact or a duly authorized person. The name and title of the signer must be typed or printed opposite the signature.