How to Temporarily Close a Business Due to COVID-19
By Deborah Sweeney
Full article from SCORE here.
Amid this unprecedented time, many small business owners have made the difficult decision to close their business. Some businesses have closed permanently during COVID-19, while others are temporarily shut down.
A temporary closure means doing a bit more than hanging up a “closed” sign on the storefront’s door. Businesses that have closed, even on a temporary basis, will not be seen as closed in the eyes of the state. They will be considered active until they file for a dissolution. There are proper procedures that should be followed for a voluntary dissolution.
Here’s what small business owners need to know about temporarily dissolving their business for COVID-19 reasons.
Secure a vote to dissolve the business.
Let’s say that your business was incorporated as a limited liability company (LLC). The owners, or members, would need to meet to discuss closing the company and pass a vote agreeing to dissolve the business. They may also refer back to the written LLC operating agreement for additional guidelines. Terms for what a dissolution should look like may already be included in an operating agreement. Some terms may include how assets will be divided once the LLC’s debt is paid and if members will be allowed to start a business of their own based on the idea behind the dissolved LLC.
Similar rules apply if a small business is incorporated as a corporation. A meeting is called for the board of directors. The directors meet to vote on the dissolution and record minutes for corporate records. Public corporations will also draft a dissolution proposal. This document formally announces the intent to dissolve the business and the proposal is made part of the public record. A majority vote needs to pass in order to agree to the corporation’s dissolution. Much like how an LLC refers to its written operating agreement for processes moving forward, a corporation may do the same with their corporate bylaws.
Whether you have incorporated as an LLC or corporation, it’s important to remember that you cannot decide to close a business alone. You will need to secure the passing vote of other members before you can begin filing voluntary dissolution paperwork.
Are there any entities that may file for voluntary dissolution without having other members vote? Just one — a sole proprietorship. A sole proprietor does business individually. They are solely responsible for the voluntary dissolution of their business.
File articles of dissolution
Once you have agreed to a passing vote to dissolve the business, you will need to file articles of dissolution. These articles are filed with the local Secretary of State in the state in which you do business.
Standard articles of dissolution include the following information.
The name of the LLC or corporation.
Date the dissolution will take effect.
Reason for dissolution.
Information about any legal actions currently pending (optional).
What if your business is registered to do business in a state outside of its incorporation state? Then you will need to file for an application of withdrawal in that state. This document may also be referred to as a certificate of termination.