Dissolutions and Moving Your Business to a New State

If you’re planning to close your business—either close it altogether or close it in one state and move it to another—there’s a process you must follow. The exact requirements and process can vary depending on your entity type, state, location in the state, the types of products or services you provide, and other factors.

In this article, I’ll break down the key considerations by business structure to give you an idea of what’s involved. For more information about the tasks you’ll need to address when winding up your business, talk with your attorney and accountant for guidance specific to your situation.

Closing a Sole Proprietorship

Sole Proprietorships are non-entities—they have no legal separation from the business owner and are not registered with the state. For income tax purposes, Sole Proprietorships are considered the same taxpayer as their owners. They report business income on their personal tax returns. Therefore, the typical process for dissolving a Sole Proprietorship is relatively uncomplicated.

1. Inform vendors, creditors, customers, and employees that you plan to close the business.
2. Collect money owed and pay off your debts.
3. If you sell company assets, file the IRS tax form to report sales of business property.
4. Issue final paychecks and make final tax deposits if the Sole Proprietorship has one or more employees.
5. Pay final sales taxes, if applicable.
6. Make final quarterly self-employment deposits to the IRS, state, and local tax authorities. (Sole Proprietors are self-employed individuals and are not on payroll like other company employees.)
7. Cancel federal EIN, payroll accounts, business licenses, and permits.
8. File the form to cancel your DBA (Doing Business As) if you registered with the county or state to use a fictitious name.
9. Close business bank and credit accounts.

Closing a Partnership

Partnerships are also non-entities, and business owners follow the general same steps that apply to Sole Proprietorships—with a few additional tasks.

1. Get partner consensus to close the business. (Partners must agree to close the business. The company’s Partnership agreement should provide the details of what happens when the business closes, including how the assets and liabilities will be divided among the partners.)
2. Let customers, vendors, creditors, and employees know you plan to close your company.
3. If customers owe you money, collect it from them. Also, pay off any outstanding debts.
4. Sell company assets and file IRS tax forms to report sales of business property.
5. Pay employees what you owe them and make final tax deposits if your Partnership has employees.
6. If you sell taxable products or services, report and pay the final sales tax due.
7. Make final quarterly self-employment deposits to the IRS, state, and local tax authorities. (Partners are self-employed individuals and are not on payroll like other company employees.)
8. Submit your final federal, state, and local partnership tax returns. The federal return is generally due three months and 15 days from when the business is dissolved. State and local final return deadlines vary.
9. Cancel federal EIN, payroll accounts, business licenses, and permits.
10. If conducting business under a fictitious name, cancel your DBA.
11. Distribute remaining assets among partners.
12. Close business financial accounts (e.g., bank and credit cards).

It’s crucial to check with your state’s Secretary of State about any state regulations regarding Partnership closures. Depending on the state and the type of Partnership, the business may need to file a Statement of Dissolution (or similar form) to officially dissolve the company.

Closing a C Corporation

Unlike Sole Proprietorships and Partnerships, C Corporations must be registered with the state in which they are formed by filing Articles of Incorporation (called Certificate of Incorporation or by another name in some states). That formality separates a C Corporation from its owners legally and for tax purposes (the company reports and pays taxes on business income). To end a  C Corporation’s existence, it must be officially closed by following its state of formation’s dissolution process.

Before dissolving the business, the Corporation must be in “good standing,” which means its ongoing compliance obligations—such as paying state taxes and filing timely corporation documents—are up to date.

C Corporations are separate taxpaying entities, and owners/shareholders are W2 employees of the corporation—which is why the owners have limited liability from the company’s debts and legal responsibilities. C Corporations must have a board of directors, hold annual meetings, keep meeting minutes, and draft bylaws by which they operate. When deciding on dissolution, the corporation’s board must have a meeting and vote to close the business. The board’s secretary must record the decision in the meeting minutes, and all voting board members must sign the document. If the C Corporation has shareholders, a majority of them must vote in favor of closing the business. That percentage varies by state, with many states requiring two-thirds of the voting shareholders to sign off on dissolving the business.

From there, these are the general steps that follow when closing a C Corporation. The following steps also apply to C Corporations that have elected S Corporation tax treatment:

1. Notify customers, vendors, suppliers, creditors, and employees that you plan to dissolve the company.
2. Collect money owed and pay outstanding debts.
3. File Articles of Dissolution (sometimes called Certificate of Termination or Certificate of Dissolution) with the state, usually through the Secretary of State office.
4. File Corporate Dissolution or Liquidation (Form 966) with the IRS (applicable if the entity is a C Corporation or an S Corporation that was previously a C Corporation). Form 966 is due 30 days from business closure.
5. Sell business assets and file IRS tax forms to report sales of business property.
6. Issue final paychecks to employees and file final payroll taxes.
7. Report and pay any sales tax owed on the sale of taxable products and services.
8. Distribute remaining assets to shareholders.
9. Submit your final federal, state, and local corporate income tax returns. The federal return is generally due four months and 15 days from when the business is dissolved—if S Corporation tax treatment has been elected, then the federal return is generally due three months and 15 days from when the business is dissolved. State and local final return deadlines vary.
10. Cancel federal EIN, payroll accounts, business licenses, and permits.
11. Close business bank and credit accounts.

Closing a Limited Liability Company (LLC)

LLCs are also state-registered (via filing Articles of Organization) and regulated entities. They are legally separate from their owners (called members). In a Limited Liability Company, depending on state guidelines and the steps outlined in the company’s LLC operating agreement, a meeting must be held to vote on dissolution.

Once the decision to dissolve has officially been made, closing an LLC requires many of the same steps as C Corporations.

1. Let customers, employees, suppliers, vendors, and creditors know that you plan to dissolve the LLC.
2. Collect money owed from customers and pay any outstanding business debts.
3. File Articles of Dissolution with the state.
4. Sell the LLC’s business assets and file the appropriate IRS tax forms to report sales of business property.
5. Distribute final employee paychecks and file final payroll taxes.
6. Report and pay sales tax that you owe for selling taxable products and services.
7. Distribute remaining assets to LLC members.
8. Report and pay final quarterly self-employment deposits to the IRS, state, and local tax authorities. (LLC members are self-employed individuals and are not on payroll like other company employees.
9. Submit your final federal, state, and local LLC income return. The federal return is generally due three months and 15 days from when the business is dissolved. State and local final return deadlines vary. If S-Corporation tax treatment was elected, then submit final federal and state S Corporation income returns.
10. Cancel state and local payroll accounts, business licenses, and permits.
11. Close the LLC’s financial accounts (e.g., checking account, savings account, and credit cards).

Moving a Business to Another State

Although Sole Proprietorships and Partnerships can operate in multiple states, most that move their businesses to another state close them first in the existing state.

Corporations and LLCs have a more formal process to follow when relocating or expanding the business to a new state.

Ultimately, they will either:

1. Dissolve the company in the original state and register it in the new state, or
2. Continue to operate the business in its state of formation and file for a foreign qualification in the new state.

Doing Business as an LLC or Corporation in Multiple States

Foreign qualification is wise if the company plans to do business in its original state and another state. Each state has its own process for foreign qualifying an entity. Most require filing a Certificate of Authority and paying the applicable fee. When registering an LLC or C Corporation in a new state, the company must also designate a registered agent there. Registered agents must have a local address and the authority to accept legal documents and government notices in that state.

Closing an LLC or Corporation in its Home State and Moving It to Another

If a business ceases operations in its existing state and physically moves to another state, it will typically follow the business dissolution process in the former state and register as a new entity in the new state.

Alternatively, some states offer domestication (sometimes called redomestication or redomiciliation) to change the company’s state of formation. Domestication alleviates the burden of completely starting over in the new state. After domestication in the new state, the company no longer exists in the former state.

In states that allow domestication, companies must submit filings in the state they are leaving and the one where they wish to relocate their domicile.

Here’s what the domestication process typically looks like:

1. The business owners provide the following documents to the new state
   • Certificate of Good Standing from the current home state (or certified copies of all home state documents)
   • Articles of Domestication (or Certificate of Conversion or similar document) to transfer the entity to the new state
2. Once the new state approves the LLC’s or Corporation’s domestication, the company either files to dissolve or domesticate out of the former home state, depending on the state’s specific requirements.
   3. Upon completion, the company has officially moved and no longer exists in its original state of registration.

At the time of this writing, 34 states and Washington DC allow redomestication in their jurisdictions, so it’s important to check with your attorney about whether that’s an option for you.

The Devil Is in the Details

Tackling all the steps to close or relocate a company requires time and fierce attention to detail. Overlooking required filings or completing them incorrectly can lead to unnecessary costs—and even fines or penalties. That’s why it’s so important to review your responsibilities with legal and tax experts—and consider calling CorpNet at 1-888-449-2638 for assistance with preparing and submitting your critical dissolution filings.