Small businesses dominate the U.S. economy. According to the U.S. Small Business Administration (SBA), 99% of all independent companies in the U.S. have less than 500 employees. As a small business attorney in San Jose, most of the time I am working with clients to form new businesses. However, as we all know, not all businesses succeed. Recently I was counseling a client with regard to the sale of her retail store. She had worked hard building the store into a business that could support her needs, but it was time to retire. Rather than going through the hassle of selling the business as a whole, she decided to simply sell the inventory to a competitor and shut the doors. However, shutting down a company can still be a hassle, and if you forget to do one thing it could result in a big liability later.
So, what does it take to shut down a small company? Here is just a short to-do list of the basic items common to most small businesses. This list does not take into account the added complexities of a business with multiple owners.
1. Talk to your accountant, attorney, financial advisor and any other professionals that may be able to assist you in a smooth closure of your business.
2. Check your leases and terminate them. If they cannot be terminated, try to negotiate with your landlord. For example, if your real property lease still has a number of years left to run, advanced notice to the landlord may allow time for the landlord to re-rent the space. Or, the landlord may take a lump sum payment of a portion of the total liability to let you out of the lease now. Do not forget smaller leases like your postage machine lease or copier lease. If you have a car lease, talk to the dealer about assigning the lease to you individually.
3. Check your contracts for rights to terminate and any personal liability. If allowed, provide notice of termination. Try to complete contracts if possible. If not, return any unused deposits or payments.
4. Try to sell off as much inventory as possible. Use a liquidator, have a ‘going out of business’ sale, and contact competitors to see if they want to buy what is left at a discount. Publish a bulk sales notice if required.
5. Liquidate other business assets – furniture, equipment, etc.
6. Collect as much of the accounts receivable as possible – after others hear you are going out of business it may be harder to collect.
7. Notify anyone that may be affected by the closure – especially creditors. Pay or settle your debts as much as possible. Ask each creditor for a confirmation that they have been paid in full, or settled in full satisfaction. Note that there are specific bulk sales requirements for notifying creditors if you sold your inventory. If you cannot satisfy your creditors, contact a bankruptcy or insolvency attorney to help assess your options. A bankruptcy or an assignment for the benefit of creditors may affect your rights to take actions on this list.
8. Tell your employees and give them as much notice as you can. Be ready to pay them their final paychecks, including all accrued and unpaid vacation, on the date of their termination. Notify your payroll company that these are the final paychecks so they can notify the Employment Development Department (EDD), or if they do not notify the EDD, file a DE-24 form yourself.
9. Submit final sales taxes and employment taxes.
10. File all final federal, state and local tax returns.
11. Cancel any business permits or licenses, including sales tax resale permit. File a Notice of Closeout for Seller’s Permit (form BOE-65) with the California Board of Equalization,.
12. Close your bank accounts, cancel any line of credit and outstanding credit cards, and shred business checks.
13. Turn off utilities.
14. Forward mail and email accounts.
15. Shut down websites (or post a notice) and turn off any e-commerce accounts.
16. If you have a fictitious business name, file a statement of abandonment with the county.
17. Distribute remaining assets to yourself (the owner), but only after creditors have all been satisfied. It is important to transfer any assets that are currently titled in the name of the business, before the business entity is dissolved.
18. Dissolve your business entity with the Secretary of State.
Businesses with more complex ownership structures may wish to consult with an attorney or tax professional to guide them through the shutting-down process.
The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.