How to Properly Close Your Business

Shutting down a business is never easy. You can’t simply say, “I want to close my business and walk away.” Proceeding correctly protects you from future legal and financial issues. A proper closure involves more than locking the doors—it requires numerous steps. Ahead, we’ll walk you through how to close a business the right way.

1. Make the Decision Official

Whether you have a partnership, corporation, or LLC, formal approval to dissolve it should be first on your closing a business checklist.

Corporations: The board of directors must approve the dissolution, followed by a shareholder vote.
LLCs and partnerships: Follow your operating or partnership agreement for procedures on winding down.

Document the vote in meeting minutes and keep those records. Many states require proof of the decision before accepting dissolution filings.

Close Your Business Today

Need help closing your business?

Get Started!

2. File Articles of Dissolution

Once you’ve made the decision, file Articles of Dissolution (sometimes called a Certificate of Termination) with your state’s business filing agency, typically the Secretary of State. This filing formally ends your business’s legal existence.

Failing to dissolve properly can lead to ongoing tax and annual report obligations, even if your company stops operating. Contact the Secretary of State/Division of Corporations and ask, “How should I close my business?” to make sure you’ve met all state-specific requirements.

3. Notify the IRS and State Tax Agencies

You must notify the IRS and state tax authorities that your business is closing. This step ensures you won’t be expected to file ongoing returns or pay future taxes.

For federal taxes:

Check the “final return” box on your last income tax return (Form 1120 for corporations, 1065 for partnerships, or Schedule C for sole proprietors).
Pay any outstanding payroll or excise taxes.
Close your EIN account with the IRS by sending a letter requesting closure.

For state taxes:

File your final state income and employment tax returns.
Notify your state’s revenue department that you’re ceasing operations.

4. File Final Payroll and Sales Taxes

Businesses that collect sales tax or withhold payroll taxes must submit final reports and payments to both state and federal agencies. These obligations include:

Final payroll filings (Forms 941/944 and 940)
Final sales tax return with your state or local agency
Final W-2s and 1099s for employees and contractors

Keep proof of payment for at least seven years in case of audits.

5. Cancel Licenses, Permits, and Registrations

Many businesses hold professional licenses, seller’s permits, or local registrations. Once operations end, contact each agency that issued a permit or license and cancel it in writing. This is how to properly close a business without risking unnecessary renewal fees and potential fines.

If you registered your business name (DBA) with a local authority, file a cancellation form to officially retire it.

6. Notify Employees and Comply With Labor Laws

If you have staff, you’re legally required to give final notice and provide final paychecks. Depending on your state, final wages must include unused vacation or PTO.

Provide final paychecks on the last day of employment or according to state law.
Distribute W-2s and file final employment tax forms.
Notify employees about benefits such as COBRA health coverage or retirement plans.

Keep all payroll records for several years, even after closing the business.

7. Settle Debts and Notify Creditors

Before you can distribute remaining assets, you must pay off your business debts. Create a full list of creditors, including vendors, landlords, and lenders. Notify each in writing that your business is closing and outline how you intend to settle the accounts.

If assets will be liquidated, communicate when and how payment will occur. Most states require creditors to file claims within a certain period after dissolution—usually 90 to 180 days. Settling these obligations now prevents future legal complications.

8. Collect Outstanding Accounts Receivable

Before closing a company, collect any remaining payments from customers or clients. Consider offering small discounts to encourage prompt payment. If accounts are uncollectible, document your efforts and write off the amounts for tax purposes.

9. Sell or Liquidate Business Assets

Liquidating your business assets helps cover outstanding obligations and allows you to distribute any remaining funds to owners. Assets may include equipment, vehicles, furniture, or inventory.

Determine fair market value.
Hold a liquidation sale or auction.
Keep records of sales for tax reporting.

Proceeds should be used first to pay creditors, then distributed to owners or shareholders based on ownership percentage.

10. Distribute Remaining Assets

Distribute any remaining assets according to your ownership structure:

Sole proprietors keep what’s left after debts are paid.
Partnerships distribute assets according to the partnership agreement.
Corporations and LLCs must follow their bylaws or operating agreements for dividing proceeds.

Document each distribution carefully and retain records for future reference.

11. Close Business Bank Accounts and Credit Lines

How to shut down the business isn’t your only concern. Your accounts must be closed, too. Once all checks have cleared and final deposits are made, close your business bank accounts. This includes checking, savings, merchant accounts, and credit cards.

Notify your financial institutions in writing and confirm closure dates. Keeping accounts open after dissolution can expose you to identity theft or unauthorized transactions.

12. Keep Business Records

Even after you close a business, you’re required to keep important documents for several years:

Tax records: At least seven years
Employee records: Four years after the final payroll
Business formation documents, minutes, and dissolution filings: Permanently

Maintaining these files protects you if the IRS, state authorities, or creditors request verification later.

13. Inform Customers and Suppliers

Transparency builds goodwill and maintains your professional reputation, even if you’re closing a small business. Notify customers, suppliers, and vendors that it’s closing, and provide a timeline for final orders or outstanding deliveries. Update your website, voicemail, and social media pages with a clear closure message.

If you’re transitioning clients to another provider, offer contact details for the new company to ensure continuity.

14. Review Personal Liability and Legal Obligations

Owners of sole proprietorships and partnerships may still be personally liable for debts or lawsuits filed after closure. Review contracts, insurance policies, and guarantees to ensure coverage remains adequate. Consult with an attorney or accountant to confirm that all obligations have been satisfied.

15. Seek Professional Support

How to close down a business properly varies by state and industry. Legal and tax professionals can help you:

Prepare and file dissolution forms
Calculate and file final tax obligations
Manage asset distribution and recordkeeping

Professional support ensures you avoid mistakes that could cost time and money later.

Close Your Business Properly With Help From FastFilings

If you’re ready to close your LLC or corporation, FastFilings can help you handle every filing accurately and efficiently. We can also further direct you on the proper steps to close a business. From annual reports to dissolutions, our online services make compliance easy. Contact us today for support.

Close Your Business Today

Need help closing your busines?

Get Started!