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Has the COVID-19 pandemic forced your business into a difficult situation financially? Then you may be considering dissolving your business. If so, there are some legal processes you’ll need to go through.


Over the past year, the pandemic has hit businesses hard. Economic hardship has kept many from spending, and government-imposed lockdowns have forced companies to limit their clientele. Recent data from Yelp shows that almost 60% of businesses that closed due to COVID-19 have shut down permanently.

Dissolving a business, however, is not a straightforward or quick process. If you’re closing up shop due to the virus (or any reason), there are still a few legal processes to go through. Especially if you’re planning to go into business again in the future, you’ll have to take these six steps to protect your credit, reputation, and personal assets.

1. Draw up a Timeline for Dissolving Your Business

To start, you‘ll need to review the regulations in your area and work out a plan for your business’s dissolution.

In general, dissolving your business will include:

  • Formally deciding to dissolve
  • Filing for dissolution
  • Notifying tax authorities
  • Notifying creditors
  • Collecting from debtors
  • Paying debts and taxes
  • Canceling all permits and licenses, including the claim to your company’s name
  • Liquidating the rest of your assets and sharing the proceeds with your partners

The complexity of your business’s dissolution and how long it will take depends strongly on your outstanding obligations to clients and creditors, as well as where your business is registered.

In any case, give yourself time to go through every other step in this process carefully and work out a system for storing and organizing important documents. You may need these records later on. The IRS, for instance, requires you to keep employment tax records for at least four years.

2. Hire a Business Lawyer to Help with Dissolving Your Business

If your business is a sole proprietorship and subject to only a few special regulations, dissolving it can be relatively simple. However, if it’s a more complex organization like an LLC, you should consider hiring a lawyer who specializes in business law or corporate law.

Having a legal professional by your side will make it easier to navigate this process while preventing any potentially expensive or illegal mistakes.

3. Make Taking Care of Your Taxes a Priority

When you dissolve your company, you are still liable for any taxes for the current and prior year. File your quarterly or annual taxes and submit forms for your capital gains and liquidations. You also need to file a final tax return, including income tax, sales tax, and payroll taxes. For an overview, the IRS provides specific guidelines for businesses planning to dissolve.

In some states, you need the IRS’s consent before you can even file for a business dissolution. This comes in the form of a document called “tax clearance” or “consent to dissolution.”

4. Collect Any Money Owed to Your Company

As a next step, collect any outstanding debts from your clients. Once you’re up to speed on your tax situation, this should be your next priority. Plus, you’ll need these funds to settle claims from your creditors.

You don’t have to inform clients who are behind on payments that your business is dissolving before collecting what you’re owed. Telling them may make getting your money harder.

5. Properly Announce the Closing

You need to formally announce your business’s closure to all your lenders, insurers, suppliers, vendors, and service providers. You also need to tell them how you are planning to wind down operations, how they can contact you to submit any claims, and state the deadline for filing a claim. 

Some states also require you to take out an ad in a local media outlet to announce your business’s dissolution publicly.

6. Settle with Your Creditors as You Dissolve Your Business

Once claims from creditors come in, carefully decide whether to accept or reject each one. Announcing business dissolution often brings obscure creditors out of the woodwork. In many cases, state laws dictate which ones are valid and which ones are not. Having a business law specialist offer you advice at this stage can be invaluable.

Finally, you can decide to either pay your creditors in full or agree on a financial compromise with them.


Dissolving Your Business Properly Will Give You a Brighter Future

COVID-19 has spelled the end for many businesses through no fault of their own. In the current economic climate, many have had to close down despite their best efforts.

By carefully planning your business’s dissolution, working with a business law attorney, and tying up loose ends, you can make a clean break and prevent any hurdles to starting a new business venture in the future.