Have you decided to close your business (without selling it)? Maybe you are looking to retire, try something new, your company is struggling, or you and your co-owners have a conflict that cannot be resolved. Regardless of why you want to cease operations, there are important steps you must take to properly dissolve your business.
Steps for Business Dissolution in New York
Owners or members of a business are required to wind down its operations and liquidate assets in a way that fulfills their legal and fiduciary obligations. The steps may vary depending on whether the business being dissolved is a corporation, LLC, partnership or sole proprietorship. However, certain aspects are similar for any company.
- Agreement to dissolve. If you are not the sole owner, the other owners must also approve of the dissolution. All owners or members must abide by any agreements that detail when and how the business should be dissolved. For example, when closing an LLC, the members should follow the rules of dissolution set out in the company’s operating agreement. If no operating agreement exists, owners must follow New York’s LLC laws, which state what type of approval is required to dissolve the LLC. For corporations, the by-laws should outline the dissolution process, including the requirement for a resolution by the board of directors and a vote by shareholders.
- Filing Articles of Dissolutions with the New York Department of State. Once the dissolution has been approved, Articles of Dissolution must be filed with the Department of State within 90 days. The Articles must include information such as the business’s name, the date the articles of organization were filed and the event that triggered the dissolution.
- Winding up affairs. Owners must take certain actions to close up operations, including the following:
- Notifying employees, customers, suppliers, landlords, insurers and vendors that the business is shutting down.
- Notifying creditors that the business is closing with information about where they must send their claims, what should be included in their claims, the deadline for submitting claims and a statement that claims will be barred if not received by the deadline.
- Settling all liabilities including creditor claims, loans and tax debts.
- Collecting any money owed the business.
- Canceling registrations, permits, licenses and insurance policies.
- Distributing remaining assets in accordance with each owner’s percentage of ownership and as set forth in the operating agreement.
- Tax clearance. Both the IRS and New York State offer business closing checklists. Businesses should consult with their accountant and file a final income tax and employer withholding return with the IRS, as well as close their Employer Identification account. In New York, businesses should also file a final business tax return, Quarterly Combined Withholding, Wage Reporting and Unemployment Insurance Return, as well as sales and other tax returns if applicable with the New York State Department of Taxation.
- Out-of-State Registrations. Companies that are registered or qualified to operate in other states must comply with those requirements including filing any forms to terminate the right to do business there.
- Maintain Business Records. Business records, tax documents, dissolution papers and other relevant records should be maintained for a period of time after the business closes. This is necessary in case of a future audit or lawsuit. The required record retention time depends on the type of document. For example, employment tax records are to be kept for a minimum of four years, but the retention requirement for property records depends on when you dispose of the property in relation to your tax reporting.
Dissolving a business is a complicated process even when it is a voluntary choice. There are numerous procedural requirements that must be followed for businesses and their owners to avoid significant liability. If you have decided to shut down your business, consult an experienced attorney to help you navigate the process.
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This Blog is made available by Romano Law PLLC for general informational and educational purposes only, not to provide specific legal advice. By using this Blog you understand that there is no attorney client relationship between you and Romano Law PLLC or any individual contributor. You should consult a licensed professional attorney for individual advice regarding your own situation.