How to Close Down a Business - Digit Payroll
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How to Close Down a Business

So you are either retiring, selling a business, starting a new venture, or the old venture just did not work out. For whatever reason you want to discontinue operations in an existing business, many business owners make the mistake of not properly closing out a business. If a business is not properly shut down, penalties and interest can be assessed by various government entities, which in many cases, can be assessed directly to the business owner.

Before we get into the specific steps, I would like to explain the theory behind a business creation/dissolution. Any business entity besides a sole proprietorship, meaning a corporation, S corporation, limited liability company (LLC), limited liability partnership (LLP), professional corporation (PC), not for profit entity, and an Association, all have four different registration (de-registration) elements to them.

Federal Government

State – Secretary of State

State – Division of Taxation

State – Department of Labor

In order to close down a business, each of these government divisions need to be notified and there is a specific way to do this.

The Federal Government:

Believe it or not, this is the easiest governmental unit to notify of a business closing. Basically all you need to do is file “final tax returns” for all of your applicable federal taxes. For payroll taxes, Forms 941 and 940, there is a box marked “Final Return”. These boxes need to be checked on your last payroll tax returns. Depending on whether you are filing a corporate return (Form 1120 or 1120S) or a partnership return (Form 1065) again just mark the box “Final Return” on your last return. The only exception to that is a Not-For-Profit, which is a bit tricky and out of the realm of this article.

 

The State Government:

Since many of our clients are located in New Jersey, I will go through the procedures to closing down a business in New Jersey. However, many states have similar procedures.

The first step is to file your final payroll tax returns. Unlike the feds, there is no “final return” box to check. That, of course, is the next step.

Next, de-register the company for NJ Taxation and NJ Department of Labor purposes. You can do this by completing a Form Reg-C Registration Change Form. This form may be completed online or you can download and mail in the paper form. For the online version, you will need your PIN number which is the same as your sales tax pin or it is posted on your NJ payroll tax returns that you receive directly from the State. This form requests the business closure date. Then go to each of your tax liability accounts: GIT – New Jersey Income Tax Withholding, SUI/SDI-New Jersey Unemployment Disability Tax and Sales Tax (if applicable) and deactivate each account.

Next, for a NJ corporation, you need to dissolve the entity with the Secretary of State. You need to complete three forms.

Form C-159D Certificate of Dissolution Without a Meeting of Shareholders

Form A-5052-TC Estimated Summary Tax Return

Form A-5088-TC Application for Tax Clearance Certificate

A total fee of $120 plus any estimated taxes must be sent with the completed three forms to the State. Mailing address and other information can be obtained form the this site.

This checklist from the state is handy also.

An LLC needs to file only one form with the Secretary of State.

Form L-109 Certificate of Cancellation Limited Liability Company

Since some of the Corporate dissolution forms require estimated tax data, it is probably a good idea to get your accountant or attorney involved.

It can take the State up to 9 months to finalize the dissolution. Once you receive notice of final dissolution/withdrawal from the State, keep this document in a safe place. There is no guarantee of prior year audits while you were still in business but it will prevent future penalties and interest from being assessed on tax returns not being filed after the dissolution date.