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Business Dissolution

COFFYLAW, LLC > PRACTICE AREAS  > Business Law Litigation > Business Dissolution


According to studies by the U.S. Federal Reserve, about 600,000 businesses nationwide shut their doors annually. During the first year of the pandemic, from March 2020 onward, roughly 200,000 additional enterprises ceased operations. Thousands more are still struggling.

Companies going out of business are a fairly common occurrence, owing to a variety of factors – poor sales, tough competition, death or illness of a partner, or disagreements over direction and management style.

Dissolving a business is not just a simple one-step operation: Decide to close, then do so. There are legal hurdles to be navigated, and usually there are debts and taxes to be dealt with. States will often require proper paperwork to be filed. Customers and creditors must be properly notified to relieve you of your obligations.

If you are involved in a business that has decided to dissolve, regardless of the reason, you will need experienced legal help in crossing all the Ts and dotting all the Is to avoid liabilities haunting you after you’ve ceased operations.

COFFYLAW, LLC, has offices in New York and New Jersey, but serves business clients wherever they’re located in the United States. When dissolution looms, contact our attorneys immediately and let us help you ensure the process goes smoothly and in full compliance with all relevant laws.


Reasons for Dissolving a Business

In addition to the reasons mentioned above, ranging from money problems to partner disagreements, common causes for businesses to dissolve include:

  • Poor cash flow: One of the preeminent causes for a business to fail and close its doors
  • Poor management: A mistake here or there – incurring too much debt, buying the wrong product, hiring the wrong people – and pretty soon the business is underwater
  • Competition: A competitor comes along with a product or service that’s superior and perhaps even more affordable, and you can’t match it
  • Economy: A little over a decade ago came the Great Recession, which put such a bite on consumers that commerce and sales plunged; more recently, COVID-19 forced shutdowns of businesses that were doing fine until the virus hit
  • Product liability: A product you’ve been selling proves defective, and customers rush for refunds or even file lawsuits
  • Death or disability: One of the owners or partners in the business falls ill or passes away, leaving a void or placing an obligation on the business to buy him or her out

Dissolving a Sole Proprietorship

If you’re the sole proprietor of a business, that reduces the complexity of decision making. It’s just you, and if you feel you’ve had enough for whatever reason, you can definitely shut your doors with a single vote – yours. However, as with all business dissolutions, there are important steps that you must take.

Unlike a Limited Liability Company (LLC) or corporation, whose creation requires the filing of extensive paperwork with the state, your state may not require anything other than a business license, permits, and a fictitious name filing if you use a fictitious name for a sole proprietorship. When you decide to dissolve, you will need to cancel and withdraw all of these.

You will also need to pay your creditors (unless you intend to file bankruptcy) and any taxes due. Some states require you to obtain a tax clearance before you can dissolve. You will also need to serve notice to your creditors that you’re ceasing operations and ending all obligations as of a certain date. You also should notify your customers, even if it’s just a sign on your door.

Dissolving an LLC

An LLC is an oft-used business structure that allows individuals to form a joint enterprise that reduces their individual liability. The founders become known as members, rather than as partners or owners per se. In forming the LLC, the founders must file an operating agreement and perhaps other forms with the Secretary of State or other entities.

The operating agreement will generally dictate how a dissolution decision can be made, usually by a majority vote or another type of concurrence. Since the LLC was filed with the state, the dissolution must be filed with the state as well, or the annual obligations for paying fees, submitting reports, and paying business taxes will continue even as your enterprise is no longer operating.

The same obligations to pay debts and taxes, inform creditors and customers, and cancel all permits, licenses, and fictitious business names also apply just as they do to the sole proprietor.

Dissolving a Corporation

Dissolving a corporation is a bit more involved than an LLC and certainly more so than a sole proprietorship.

First of all, to form a corporation, whether traditional or subchapter S, you must create and file articles of incorporation and bylaws for public viewing, along with any other documents your state requires. These articles and bylaws will specify how a dissolution can take place. Generally, the board of directors must first vote on the issue, and then submit their decision to the shareholders for a further vote.

In a small, closely-held corporation, the board and shareholders may be the same people, but in a larger corporation, these votes can be dramatic, emotionally exhausting events involving many people with varying levels of involvement.

Each state requires that dissolution documents be filed. If they’re not, even if the corporation ceases operations, yearly reports, fees, and taxes may continue after the business has closed.

Again, all tax, debt, licensing, permitting, and fictitious naming cancelation requirements must be met as well. If your corporation is registered or qualified to do business in another state, you must file the necessary forms to terminate those registrations as well.


Though COFFYLAW, LLC, is located in New Jersey and New York, we have long served business clients throughout the country. Each state has a somewhat different approach to the requirements for business dissolution, and our attorneys can help you navigate your particular state’s mandates. We can also guide and advise you as you deal with creditor and customer issues to resolve any obligations remaining on those fronts. If your business is considering taking the final steps toward dissolution, contact us at COFFYLAW, LLC, immediately. Don’t leave anything to chance.