I Stopped Operating My Business Years Ago But Never Formally Dissolved It… Now What?
Some businesses go down in a blaze of glory. Others quietly fizzle out. You do a little less business one month, and then even less and eventually nothing at all. Either way, a day comes where you know it’s all over. If you’re a sole proprietor, you can often just stop conducting business, and you’re good. However, if you have a business entity registered with the state, you’ll need to formally dissolve your business.
Why do I have to formally dissolve my business?
When people choose to form an LLC, corporation, or other incorporated business, you get some neat benefits, but they come at a price.
By filling out your paperwork and registering with the state, what you’re really doing is committing to two things: updating the state on any changes to your business and paying the state’s taxes and fees. In exchange, you get a host of benefits. The most significant benefits for most businesses are limited liability and tax flexibility, but there plenty of other advantages as well. For instance, incorporated businesses have an easier time attracting investors and getting banks to approve business loans.
All those benefits don’t just go away because you’re not actively running your business. Similarly, all your obligations don’t just go away either. They don’t stop until your business is dissolved.
What happens if I don’t dissolve my business?
The short answer is that you’ll probably lose your good standing and rack up some fees. If you’re lucky, the state will just dissolve your business for you.
Think of your business like a phone plan. Just because you stop using your phone doesn’t mean your contract with your provider is canceled. If you don’t actually take the steps to cancel your plan, your phone service continues. Eventually, you’ll miss enough payments that they’ll put a hold on your service or cancel your account entirely. If you want to avoid going to collections (or if you want to start your phone plan back up again), you’ll have to pay the bill you’ve racked up, including any late fees and interest.
While your business isn’t a phone, the overall system is pretty similar. If you stop running your business without properly dissolving your LLC, the state is going to assume you’re still in business, and they’ll keep providing you benefits and expecting you to hold up your end of the bargain and pay state taxes and fees.
What kind of yearly taxes and fees could I fall behind on?
Most states have either an annual report or a franchise tax due every year or so. If you miss one, you’ll typically incur a late fee. Over time, you’ll either continue to accrue fees or the state will administratively dissolve your business.
Annual reports are the most common kind of yearly business fee. For instance, in Indiana, you’re required to submit a Business Entity Report each year and pay the mandatory fee. If you don’t, there aren’t any late fees, but the state can dissolve your business after 120 days. In Minnesota, your “grace period” before dissolution is much shorter—if you don’t file their Annual Renewal by the end of the year, your New Year’s Day gift is a dissolved business. If you miss annual reports in states like Maine and Michigan, they’ll hit you with late fees first before eventually dissolving your business.
Less common (but often much more expensive) are yearly franchise taxes. In Delaware, LLCs pay an annual tax of $300. Corporations pay at least $225 a year for the state’s franchise tax. If you miss one of these filings, you’ll get hit with a $200 late fee plus monthly interest.
Utah is another state with a yearly corporate franchise tax (a 5% tax on net income). There’s a minimum tax of $100. The state doesn’t care if your corporation is active or not. If you have a corporation, you owe at least a $100 a year. You’re liable for this tax until your corporation is dissolved.
If you have a corporation, don’t forget that the IRS requires corporate tax filings as well, even if you don’t have any income to report.
How do I dissolve my business?
Dissolving your business usually involves filing a form or submitting a statement to the state (typically a business division of your state’s Secretary of State Office). Sometimes, you’ll have to pay a fee to file.
In Georgia, for example, there’s no fee to submit their Certificate of Termination (which is nice—typically you’re not shutting down your business if you’re raking in cash). However, other states go with more of a “if there’s a form, there’s a fee” philosophy. For instance, you’ll pay $100 to cancel an LLC in Massachusetts. If you’re tempted to skip dissolving your business to avoid paying the fee, go back and read the last section about all the fees you can rack up if you DON’T dissolve properly.
What if I want to start my business back up again?
To get a dissolved business up and running again, you have to file for a reinstatement. This involves filling out a reinstatement form with the state. Usually, the form is pretty similar in content to your original formation documents. The fee, however, may be more or less than the fee to first start your business.
For instance, in Massachusetts, it’s much cheaper to reinstate an LLC than to start over with a new company—LLCs cost $500 to form but only $100 to reinstate. In Georgia, however, the opposite is true. For LLCs, reinstatement is $250, but it’s only $100 to start a brand new business. Note that some states also have time limits on reinstating a business. In Georgia, for example, you can only reinstate within 5 years of dissolution.
Last words on dissolution
All in all, it’s time to deal with your business. Find out if your business has already been dissolved. Your registered agent should have forwarded any notices from the state, but if you’ve really lost touch with your business, go online and do a business records search. If your business hasn’t been dissolved, either dissolve it or reinstate it. Whether it’s been dissolved or not, be sure pay any outstanding taxes and fees. That’s it. While you may have to pay out some money, you’ll at least be able to put your old business behind you once and for all.