How-To Articles

How to Dissolve a Business

Termination of an entire business is known as dissolution. There are two routes you can go with regard to dissolving your business. You can informally dissolve your company by simply halting all business action but still leaving the company itself intact. Or you can go through the formal legal process. Dissolving your business informally is tempting because of how easy it is, but it leaves you and any other owners wide open to liability and lawsuits. So it's recommended that you dissolve your business formally and with legal assistance.

Before you file for a formal Certificate of Dissolution, it's best to get your business affairs in order to make sure that there won't be any unforeseen issues looming over your head. There are many issues that may arise, so here are some ways to sidestep a few of them.

1. Go through all existing contracts to see if they impose any ongoing requirements. If you don't have any provisions in place that allow the contracts to be cancelled, you'll have to honor them.


2. Carefully look at your insurance information to figure out whether it will cover past acts if you cancel immediately or if you will need to keep the insurance should a customer file suit against you for a previous transaction.


3. Find out if you are bound by any long-term leases or if you can give notice and get out of them.

Now that you are ready to end your business, there are certain steps that need to be taken to ensure that you're protecting yourself, your credit and your reputation as a business owner. Here is a basic checklist:

1. Obtain written permission from all owners to dissolve the company


2. Contact your Secretary of State?s office to file for a Certificate of Dissolution


3. Pay all taxes due to federal and state government


4. Cancel permits, licenses and your fictitious business name (if applicable)


5. Close all financial accounts in the business name


6. Notify creditors, customers, vendors and employees of the dissolution


7. Keep all business records for the next several years

This is the basic checklist for most small businesses. If your business is incorporated, your route to dissolution is a little different. Shareholders must be involved in the dissolution process because you'll need their stamp of approval. What you should first do is have a board of directors draft a resolution to dissolve the corporation. Make sure all board members approve the resolution before bringing it to shareholders. Shareholders should then vote on it. Once you get their approval, you can start filing for a Certificate of Dissolution. From there the steps are similar to that of other small businesses.