At some point, many business owners consider closing their business. Maybe partners are splitting up, maybe retirement is calling, or maybe it’s just time to move on.

Dissolving your business the right way will reduce potential future issues related to taxes, registrations and licenses, and other unanticipated issues or costs.

In Arizona, legally terminating an LLC (or dissolving a corporation) is an easy process, provided you have done the work to properly prepare ahead of time. Here are 10 steps to follow when closing your business.

Step 1 - Review Governing Documents

If your business entity has an Operating Agreement or Bylaws, or any other document that provides guidance for how you operate your entity, consult that document for any required provisions or steps related to termination. Also, be sure to review your commercial lease for any outstanding rent obligations and contact your landlord to discuss. If you anticipate any problems with your lease, talk to your business attorney before contacting the landlord to understand your legal options.

Step 2 – Vote

Your governing document may require a majority or super-majority vote of the LLC Members or the corporation’s Directors to close. Take a vote – which can be at a meeting, on a video call, or even by email, if allowed in your governing document – and get each person’s approval (or not) to terminate the entity. Keep notes of the meeting, to document the vote, in your files as it will serve as the legal authority for you to file the paperwork with the state. You may want to draft a Resolution of the Members/Board to memorialize the decision. Even if you are the only Member or Director of your entity, make a written record of the vote. One in favor - zero against is a majority vote!

Step 3 – Coordinate Stakeholders

Closing a business may involve the assistance of a number of internal and external stakeholders. Communicate with your workers and service providers like accountants, bookkeepers, attorneys, insurance brokers, and HR consultants to ensure you anticipate all needed actions and potential costs. 

Step 4 – Notify Clients

At some point, and maybe Step 4 is too early, you will need to inform clients that you intend to close the business. Clear communication regarding the timeline and the process will avoid unwanted surprises, will protect the company’s (and the owners’) reputation, and will ensure a smooth transition.

Step 5 – Pay Debts

After getting approval to close, the business must pay all of its debts. This may include employee compensation, perhaps unused PTO, money owed under any contract, bills for services you use in your day-to-day operations, loans, and of course, state and federal taxes. In Arizona, you might need to get a Tax Clearance Certificate from the Arizona Department of Revenue before the termination of your entity will be approved by the Arizona Corporation Commission. If you are registered to conduct business in other states, there may be other obligations for you to manage. Talk to your CPA about the appropriate timing for filing your final return and any other actions required to avoid future compliance issues.

Step 6 – Liquidate Assets

Your company may own a warehouse full of inventory, machinery or equipment, vehicles, or office furniture. Be sure to follow any guidelines set out in your governing documents regarding the liquidation of these assets. Perhaps you can sell them, maybe distribute in-kind to your owners, maybe donate. Be sure to keep a written record of the disposition of each item or group of items – where they went and how much money the company recouped, if any. 

Step 7 – Distribute Remaining Assets

After all debts and obligations have been paid, any remaining financial assets can be distributed to Shareholders or Members. Check your governing document for how this distribution should occur. Typically, but not always, the assets are distributed to Shareholders in accordance with the number of shares they own or to LLC Members in accordance with their percent membership interest. 

Step 8 – Terminate Contracts and Close Accounts

At this point, if not already done, you can terminate any existing contracts for utilities, insurance, and other services, and close credit card, bank, and vendor accounts. Remember to cancel any active permits or licenses to avoid automatic renewal obligations and ongoing fees. 

Step 9 – File Articles of Termination/Dissolution

The final step in terminating your Arizona LLC or corporation is to file the Articles of Termination (LLC) or Articles of Dissolution (corporation). If you are registered as a foreign entity in any other jurisdiction, remember to terminate that as well according to that state’s legal requirements.

Step 10 – Store Documentation

Even after your business entity is legally terminated, it’s critical to keep important documentation including, but certainly not limited to: the initial Articles of Organization/Incorporation, your governing documents, EIN confirmation and any communication with the IRS, tax records, bank statements, annual meeting minutes, employment records, financial statements, files for any legal matters, insurance policies, important contracts (even if terminated), real estate sales, and intellectual property ownership/patents. Retain for at least seven years, longer if you are able, to defend against any future audits or legal matters. 

Closing your business involves a number of steps, and it can be helpful to have your professional advisors provide input and guidance. Don’t hesitate to call me for assistance, or schedule an appointment, when closing your Arizona entity.

NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

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