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How to Close Your Sole Proprietorship Business

How to Close Your Sole Proprietorship Business

Closing a sole proprietorship is different –and typically much easier — than closing a corporation or partnership. For themost part, sole proprietors do not have to consult with anyone else beforedeciding to call it quits. However, sole proprietors still haveresponsibilities and obligations to tend and also may have outstanding loans topay off.  

Below, you’ll find a detailed hypothetical about starting and closing a sole proprietorship, followed by examples of closing a corporation or partnership. By comparing and contrasting, you should get a better understanding of how the process works.

Closing a Sole Proprietorship

Sue decides to sell her delicious chocolate chip cookies. After some investigating, she realizes that she could market, sell, and distribute her cookies over the Internet.

After five years in business, Sue decided to close down her business. Because all states have different requirements for closing businesses, Jane checked with the Small Business Administration office in her area to determine whether she needed to notify the secretary of state,local tax authorities, or licensing entities of her decision to close her business. She found out that she is required to send a letter to the Utah Department of Commerce discontinuing the Cookie trade name. She also had to notify the Utah State Tax Commission and perhaps a the licensing entity. That completed, it was time to dismantle her business:

  • She filled her final orders.
  • She closed her website in two stages – she initially posted a message about closing her business and no longer taking orders and removed the order-taking pages from the site. She planned a complete shutdown of the site a number of months later, when it seemed that enough customers had seen the message.
  • She notified her creditors and debtors that she was closing and told them to submit final bills or payments.
  • She paid all of her outstanding bills.
  • She made sure that her suppliers knew that she was no longer in business.
  • She donated the balance of her stock to food shelters.
  • She sold her equipment.
  • She put aside an appropriate amount of money for taxes and unknown creditors.
  • She notified her commercial liability carrier of her closure.
  • She kept detailed records of each transaction in anticipation of completing her income taxes.

Involuntary Dissolution of a Corporation (Administrative Dissolution)

Piggy Supply, Inc. has been in business for two years. During that time it has been wildly successful. Piggy Supply fails to deliver its annual report to the secretary of state. Piggy Supply receives a notice from the secretary of state that they will be dissolved if they do not file an annual report for the last two years within sixty days.

Involuntary Dissolution of a Corporation (Judicial Dissolution)

Dentists, Inc. has been in operation for three years. Due to financial mismanagement, it has failed to pay a number of suppliers over the past year. A supplier brings an action in court requesting that the court dissolve the corporation so it can be paid for all of the supplies it has supplied to Dentist, Inc. and not paid for. The court determines that Dentists, Inc. should be dissolved. It orders the business to wind-up its corporate affairs and liquidate its assets. The court also appoints a receiver to sell and dispose of the corporate assets.

Dissolving a Corporation Before Business Commences

If you file all of the paperwork with the Utah Department of Commerce, but you never actually conduct business – meaning that you never sell anything, you can shut down your business administratively.

In Utah, you will file a Notice of Dissolution with the Utah Department of Commerce.

Dissolving a Partnership

After high school, Pete, Fred, Owen and Sam, started a business. They decided to make it a partnership since they wanted a business form less formal than a corporation and wanted equal rights in regard to the management of the business. They did not bother to sign a partnership agreement in writing , but instead orally agreed that the partnership would continue until one or both of them decided to leave the business. Fred decided that he had to sell real estate for below market prices to the members in his organization.

Owen asked Sam to only sell real estate at a price that allowed them to stay in business. Sam refused. Fred hired a lawyer who brought an action in court to compel the dissolution and winding up of the partnership.

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When you need help closing a business, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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About the Author

People who want a lot of Bull go to a Butcher. People who want results navigating a complex legal field go to a Lawyer that they can trust. That’s where I come in. I am Michael Anderson, an Attorney in the Salt Lake area focusing on the needs of the Average Joe wanting a better life for him and his family. I’m the Lawyer you can trust. I grew up in Utah and love it here. I am a Father to three, a Husband to one, and an Entrepreneur. I understand the feelings of joy each of those roles bring, and I understand the feeling of disappointment, fear, and regret when things go wrong. I attended the University of Utah where I received a B.A. degree in 2010 and a J.D. in 2014. I have focused my practice in Wills, Trusts, Real Estate, and Business Law. I love the thrill of helping clients secure their future, leaving a real legacy to their children. Unfortunately when problems arise with families. I also practice Family Law, with a focus on keeping relationships between the soon to be Ex’s civil for the benefit of their children and allowing both to walk away quickly with their heads held high. Before you worry too much about losing everything that you have worked for, before you permit yourself to be bullied by your soon to be ex, before you shed one more tear in silence, call me. I’m the Lawyer you can trust.