A sole proprietorship is considered a business entity run by a single person. Since this type of business is not registered with the state, the dissolution process is fairly straight forward compared to other business structures. However, since sole proprietors are not protected from personal liability, it is extremely important to properly handle all debts and outstanding amounts owed to creditors and lenders to avoid lawsuits and judgements.
Sole proprietorship dissolution - areas to take care of
Dissolving a sole proprietorship basically involves closing your creditor accounts, paying off outstanding debts and maintaining records for tax filing reasons. Here are the main areas to properly address.
Debt payments
Be sure to handle all your debts to lenders and creditors. First, inform them that you will close your business. Once you paid off the amounts you owe, close down your creditor accounts. The SBA advises that you work with your attorney, accountant and insurance company to account for all outstanding money. If you cannot afford to pay your debts all at once, set up payment arrangements. Taking these steps will help prevent or minimize potential legal problems.
Notify the IRS
Handle your tax liabilities for the current year. During your dissolution, you must notify the IRS and your state and local tax authorities that you will be closing your business. Make sure to keep copies of your final tax forms. Also close your business accounts to avoid interest that would create further tax liabilities.
Cancel your business licenses
Be sure to cancel all your business licenses and registrations with DCP in Connecticut. Also cancel your trade name if it is registered locally so that it no longer exists.
Collect amounts owed
Collect outstanding amounts owed to you by your clients before you officially close. Otherwise, collecting money afterwards will be more difficult.
While these are just general areas, your lawyer and accountant can provide more specific information on properly dissolving your sole proprietorship. They can also offer the best advice for your particular situation to help safeguard against personal liabilities.