You must take into account several considerations when you wish to sell or dissolve a sole proprietorship because all states and localities have different requirements for terminating sole proprietorships. Additionally, it is wise to check with an attorney familiar with the requirements of the Secretary of State, county, city and small business administration who knows the appropriate steps to take.
Dissolving a Sole Proprietorship
Dissolving an individual business as opposed to selling the business may be preferred when there are time constraints. Closing a sole proprietorship does not require negotiations or transfers. As a result it may be faster than selling a business. In either case, it is important to keep accurate records and set aside a reserve for unexpected debts, taxes and bills.
When dissolving a sole proprietorship, the owner must notify:
- Secretary of State;
- the county and city clerk’s office;
- local, state and federal tax authorities;
- licensing entities and trade associations;
- creditors and suppliers;
- customers;
- employees;
- landlords and equipment lessors; and
- banks.
However, unlike many other businesses there is no need to officially register the dissolution of a sole proprietorship.
Nonetheless, there is no shortage of tasks to complete before dissolution. Owners should complete all final orders, notify customers, and pay outstanding debts. It is just as important to cancel registration, permits licenses and business names. Employment and labor laws may also dictate how to notify, terminate and pay employees and file related tax paperwork.
Owners who are facing deportation should consider what assets they can sell after dissolving the business, such as equipment or merchandise. After selling assets, owners should close all business bank accounts and credit cards.
Selling a Sole Proprietorship
Selling a sole proprietorship is advantageous when time constraints are not present, when a buyer has already shown interest, or when the business has a particularly high valuation. The process for selling a sole proprietorship may be complicated and it is recommended that you obtain the advice of an attorney and business broker if you wish to sell your business.
You must first consider the valuation of your business taking into account the licenses, leases, and other assets of the business. As a procedural matter, you must reflect the sale on all tax forms. For federal purposes, you must document the sale on the Form 8594 (Asset Acquisition Statement). In some states, such as Texas, an individual can dissolve, and a new owner can register the business on sales tax forms. In Wisconsin, if the business name is not the new owner’s full legal name, the new owner must file a “doing business as” application. There are many state specific variances.
If you have a mortgage or lease on the business property or on equipment used for the business, you should also transfer these to the new owner and obtain releases from the lenders and lessors. Failure to do so could result in you being responsible for payments or injuries long after you have left the country and are no longer running the business.
If the business is worth less than its debts, you might consider initiating a state law remedy usually called an “assignment for the benefit of creditors.” This involves transferring all of the assets to an assignee (liquidator) who sells the assets and distributes the proceeds based on how much each creditor is owed to creditors who file claims after being notified. In most cases, the assignee is a person or entity of the business owner’s choosing, but they must be acceptable under state law and have the necessary qualifications. This process is most often used for businesses (corporations or limited liability companies) as state law typically will not provide an individual or sole proprietor with a “discharge” of their debts. While the owner still may have personal liability for any unpaid trust fund taxes, creditors may be less likely to pursue collection efforts.