The lifecycle of a small business requires understanding what it means to dissolve a business, file a business withdrawal, and file for a business reinstatement.
Even if you don’t think these terms apply to your business, you may find a day comes where you need to put in a request for one — or more — of these filings. Let’s take a closer look at the definition of each term, when you might consider starting filing paperwork, and how filing these articles impacts small businesses.
What is a dissolution? A dissolution is a formal closure of a business with its state of incorporation. Formally closing a business means the registered company is no longer seen as active through the eyes of the state.
If an LLC or corporation does not file articles of dissolution, the state will continue to see the business as active. The company will then still be required to file annual reports and pay state fees and taxes.
When do I need to close my business with the state?
The answer to this question will vary depending on where your business is in its lifecycle. Specific circumstances often play a key role in determining voluntarily dissolving a business, such as:
- The business has run its course.
- The business owner would like to move on and start a new business.
- There’s no more money to be made with this specific business.
What if the business has been involuntarily dissolved?
An involuntary dissolution may occur when a small business falls into bad standing with the state. Falling into bad standing often starts when a business is late to file — or does not file at all — its annual report or pay for fees or taxes.
The longer these items go unresolved, the longer the business will stay in bad standing. If the necessary paperwork is not filed or fees are not paid, the state may involuntarily dissolve the business. Should this happen, the owner may be able to get the business back into good standing with a business reinstatement. We’ll share more about how that works in a moment.
How does a dissolution impact my business?
Closing a business means conducting a bit more due diligence beyond hanging up a “closed” sign and locking up the doors forever. A business that is closing needs to take the proper steps before wrapping up its operations.
Filing articles of dissolution means that everyone within the business has formally agreed to close the business. They understand the necessary next steps to formally closing the business with the state. The business must file its annual return, pay all taxes owed, cancel its business licenses, notify and pay employees, and pay off any outstanding business debts. Doing this keeps the owner of the business from being charged any state fees or taxes associated with the business.
What is a business withdrawal? A business withdrawal allows you to close your business in a foreign state.
Filing a withdrawal means that a business no longer has obligations to a foreign state. As such, the business can terminate its existence in that state.
When do I need to close my business in a foreign state?
Generally, a corporation or LLC that requests to conduct business in a state that is different from its own needs to file a foreign qualification. This attests that the business is qualified to legally conduct business in that state as well as meet that state’s annual tax and compliance requirements.
Filing for a business withdrawal means that your business will not operate or conduct business in a foreign state. Several factors, ranging from the business running its course to deciding to conduct business in another state, may be factored into consideration for knowing “when” an entrepreneur may decide to file a withdrawal and close the business in a foreign state.
How does a business withdrawal impact my business?
If you are filing articles of dissolution, you may be familiar with withdrawals. Businesses that dissolve and are registered to do business in another state must file an application of withdrawal in these states. This ensures that the business is closed in a foreign state. It also keeps the business owner from being held liable for filing future annual reports or paying other fees.
Essentially, filing a business withdrawal tells the foreign state that the business is closed and no longer exists.
What is a business reinstatement? A business reinstatement allows business owners to reinstate an LLC or corporation that has fallen into bad standing with its state of incorporation.
In addition to filing an application to reinstate the business, the Secretary of State may request filing additional forms, such as a letter of good standing, or reinstatement packet submissions that allow you to report changes in the business with its Secretary of State.
When do I need to reinstate my business with the state?
It’s critical to understand your dissolution status before filing a reinstatement.
Your dissolution status will be either voluntary or involuntary. A business that voluntarily dissolved may decide to reinstate if they feel like it’s time to get back to business.
However, the rules are a bit different for involuntarily dissolved businesses. There is usually an action associated with the business, such as forgetting to file an annual report or writing a check that bounced for a fee payment, that allowed it to fall into bad standing with the state. If no action was properly taken to fix this issue, you will need to file additional documents when reinstating your business.
For example, let’s say you forgot to file your annual report. Upon reinstating the business, you will need to fill out an application for reinstatement and file a delinquent form. Additionally, you will need to pay the reinstatement filing fees as well as any other necessary fees. A delinquent annual report will require paying filing fees per each delinquent annual report year.
How does a reinstatement impact my business?
Businesses that have been voluntarily or involuntarily dissolved have a second chance to start again. A reinstatement especially impacts involuntarily dissolved businesses by allowing them to remove the bad standing non-compliant mark and get back to good standing again.
Try to avoid making the same mistakes again after reinstating your business. File all annual reports and paperwork on time. Pay all fees and taxes by their deadline. You’ll receive peace of mind in knowing that you’re back to business and back in compliance once again.
This article was written by Deborah Sweeney and originally appeared on Score.