A sole proprietor operates a business alone or as part of a married couple and takes full responsibility for any debts and liabilities incurred. Setting up and operating a sole proprietorship involves few legal formalities; similarly, it’s relatively easy to close the business. You may decide to close a sole proprietorship for a variety of reasons, including selling to a larger company, ill health or economic reasons. When you close a sole proprietorship, you continue to be individually liable for all business debts incurred.
Fit your business needs with the right LLC package
Advising Clients and Customers
When you close your sole proprietorship, you should make sure that you inform all clients, customers and business associates. You should also ask all creditors to submit invoices by a certain deadline, so that the accounts can be finalized and all taxes paid. If you operate a website, you can post a notice on the website announcing the closure of the business.
Close Bank Accounts
Most sole proprietors open a separate business bank account when they commence business. If you kept your business account separate from your personal account, you should arrange to close the business account once all bills are paid and accounts finalized.
Sole proprietors are responsible for all tax liabilities incurred by the business. When a sole proprietor closes his business, he must inform the local and federal tax authorities and pay all taxes due. The New Jersey Division of Revenue website allows businesses to submit online requests to close the business by entering the 10-digit revenue number originally issued. For federal taxes, you should also inform the IRS of the effective date of closure of the business.
If you operate your sole proprietorship under a fictitious business name – also known as a DBA – you should contact the county clerk’s office where the business operates to advise them of the closure. If you have been operating under your own name, you don’t have to do this.
Permits and Licenses
Sole proprietors sometimes obtain licenses and permits to operate their businesses such as to sell alcohol, provide child care or harvest shellfish. If this is the case with your business, it’s good practice to inform the relevant agency of the closing of your business to avoid any future liability or paperwork.
References & Resources
- Brand X Pictures/Brand X Pictures/Getty Images