Ending your business is an unfortunate experience. Every entrepreneur fears their venture failing. Even if it was thriving before, your business model might be outdated. A sole proprietorship can only go so far. But even with a solid core of partners, coworkers, or employees, termination could be your company’s ultimate fate. So how do you dissolve an S-Corporation?
Why Does This Become Necessary?
Even though your S-Corporation has gone under, you’re still on the hook. The IRS will still demand you pay your fair share. Thus, you must inform the IRS and your relevant state authorities of the situation. Otherwise, you’re obligated to file inactive business annual reports with the state. Beyond that, you are required to continue filing tax returns and submitting them to both state and federal authorities. Maintaining your business license is also essential, but all of these steps come at a cost. Since you are not generating any more revenue from your business, it’s time to cut ties. Continuing to pour money into it is a losing battle.
How Do I Know When It’s Time?
Terminating the business as early as you can (once you know you are going to fold, that is) is the best move you can make. Complete the process by the end of the tax year. Suppose this scenario unfolds at the start of your tax years. In that case, there is a deadline for your paperwork. This deadline falls on the 16th day of the third month within your relevant tax year. But if it is at some other point, you can choose any date you want to declare your S-Corporation as defunct. That said, send all of your related documentation to the IRS before this date arrives.
So How Do I Do It?
The first step in this process is to find your Articles of Incorporation. This document is the one you sent to the state when you first opened your business. As you read it again, keep an eye peeled for the language describing the dissolution of the S-Corp. After that, initiate proceedings to dissolve the LLC or corporation. Co-owners and other shareholders must vote on this matter, as well. Be sure to record the outcome of the vote in the meeting minutes or draw up a written consent form. In other words, put it down in writing. The Articles of Dissolution (or Certificate of Termination) kick in at this point. Send these forms with the Secretary of State serving your state. There is more to it, but we will have to explain more later!
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