The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
I have written about starting up a business entity, like a corporation or limited liability company. But what about when you are ready to close or wind down the business? There is a process to winding down a business that must be followed. So, this week I thought I would touch on that process.
Why would you wind down a business?
This may seem obvious, but you should know just what your reasons are for wanting to wind down or close a business. If the purpose of the business has ended or there is nobody to transfer or sell the business to, then that is a good reason to wind down the business. If it is a corporation or limited liability company, then there is a specific process you must follow.
When a business is established and set up in Texas, a Web File number is assigned by the Texas Comptroller. This number is used to manage your tax filings in Texas. This number should be in your original corporate documents obtained when you started the entity. It is also on your tax notices from the Comptroller. If you can’t find it, then call the Texas Comptroller’s Office at 1-800-252-1381.
What documents do you need to complete before the entity can be closed? You will need a Final Franchise Tax Report, any final state tax filings, Certificate of Account Status, and possibly a Public Information Report. This serves to provide proof that there are no outstanding franchise or sales taxes owed. The purpose of the Certificate of Account Status is to prove that your entity is in good standing with the State of Texas and is required to legally close your business with the Secretary of State. Once you have this information, an attorney can help complete and submit the necessary forms.
Some folks ask how long the process of termination takes. The full process may take additional time depending on tax status, and it takes the Texas Comptroller 7 - 10 days if filed online. Add 3 to 4 weeks if done through the mail.
Does anything need to be filed with the IRS? Your tax advisor will need to file a final federal tax return and possibly send a formal notice to close the EIN to the IRS.
What happens if I don’t formally terminate my business? If you don’t file for termination, then you may still owe annual franchise tax reports and taxes. While the State may eventually involuntarily terminate the entity, this could create complications or liabilities later.
Once you formally wind down an entity, it cannot be reopened. A new entity would need to be formed if you decide to restart the business. Keep in mind that the name that may have been difficult to obtain originally will be lost. Notify your insurance agent that you are terminating the business. This ensures that you are not paying for insurance that is no longer necessary. Easier to do ahead of time versus trying to recuperate those fees later.
Before sitting down with your attorney, gather your corporate documents and last tax return. They will also need details about the business’s final operating date and final year of revenue. You can also gather confirmation that all taxes are paid and tax returns have been filed. The more organized you are, the simpler the process will be, and this should save time as well. However, dealing with the State is almost always a challenging matter.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com ©