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.
Business Lawyer Free Consultation
When you need help closing a business, call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506