How Do I Close a Business?

Closing a company is an emotional act.  It may be a source of sorrow or embarrassment.  It may be tempting to walk away as quickly as possible and move on. 

The dissolution or closing process for companies in Connecticut involves several steps.  The goal is to ensure proper legal dissolution, the settlement of debts, and the protection of both personal and business interests. The process can vary depending on the structure of the business (LLC, corporation, etc.), but here’s an outline of the general steps involved in closing a company in Connecticut.

1. Hold a Meeting and Vote

Let’s be formal before making a big decision.  If the business is a corporation or LLC, the first step is to hold a meeting with all stakeholders—such as shareholders, members, or board members—to vote on the decision to dissolve the company. A formal vote needs to be documented in the minutes of the meeting. In some cases, the company’s operating agreement or bylaws may require a specific percentage of approval.

2. File Articles of Dissolution

Once the decision is made, the next step is to file Articles of Dissolution with the Connecticut Secretary of State. For LLCs, this involves filing the Certificate of Dissolution, and for corporations, it's the Articles of Dissolution form. This document officially notifies the state that the company is no longer operating. The forms can be filed online or via mail, and there may be a filing fee associated with the process.

3. Settle Debts and Obligations

Before closing, the business must pay off any outstanding debts, including taxes, loans, and vendor obligations. This may involve liquidating assets to generate the funds needed to settle these liabilities. It’s important to notify creditors of the dissolution and provide them with a formal closure timeline. Connecticut also requires that businesses settle any state tax obligations. You can contact the Connecticut Department of Revenue Services (DRS) to confirm that your tax filings are up to date.

4. File Final Tax Returns

The business must file final federal, state, and local tax returns. This includes income tax returns, employment tax returns, and any other necessary filings. When filing federal tax returns, the IRS must be notified that the business is no longer active. For Connecticut state taxes, you need to file the appropriate final state tax returns, including sales tax and payroll taxes if applicable.

5. Cancel Licenses and Permits

Any licenses, permits, or registrations associated with the business should be canceled or transferred. This includes business licenses, professional licenses, or any special permits required by state or local authorities. Failing to cancel these can result in unnecessary fees and legal complications.

6. Distribute Remaining Assets

After debts and obligations are settled, any remaining assets should be distributed among the business owners or shareholders, according to the ownership percentages outlined in the operating agreement or articles of incorporation. For LLCs, the distribution should be made in accordance with the LLC agreement.

7. Notify Employees and Terminate Employment

If the business has employees, they should be notified of the company’s closure in a timely manner. Employers need to follow the appropriate procedures for terminating employees, including providing final paychecks, severance (if applicable), and fulfilling other employment obligations such as filing final wage reports.  This is an important step that must be handled with care and humanity.

8. Find a Path Forward

A closed company builds character and experience.  It is a huge learning opportunity.  You don’t have to be defined by this event.  Take time to grieve the loss.  Recognize that your emotions may swing back and forth until they settle.  When you are ready for your next step, Attorney Sean-Michael Green will be ready to help you achieve your next goal.