Closing a Sole Proprietorship in Tennessee

By Cindy DeRuyter, J.D.

Closing a Sole Proprietorship in Tennessee

By Cindy DeRuyter, J.D.

Sole proprietorships are a popular business entity for entrepreneurs, in part because they are simple to establish and maintain. When it no longer makes sense to keep the business going, you can also close your sole proprietorship fairly simply. If you operate a sole proprietorship in the state of Tennessee but decide to shut down your business, you must follow the state's established procedures to close the business entity. These required steps protect you, your creditors, vendors, customers, and employees.

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1. Notify affected parties.

Determine an end date for your business. Sometimes, it makes the most sense to close the business on the last day of a calendar quarter or on the last day of your fiscal year. In other cases, you might simply choose a future date by which you intend to cease operations. After choosing a closing date, notify your employees, office or retail space landlord (if applicable), vendors, and suppliers. Check the terms of your contracts and agreements with landlords and suppliers to understand your contractual obligations.

2. Pay financial obligations.

As the sole proprietor, you are personally responsible for meeting your business's financial obligations. This includes payroll expenses, taxes, and any outstanding debts. Notify creditors that you have ceased operations and cancel open lines of credit or business credit cards.

3. Cancel all licenses and permits.

If you had to obtain business-specific licenses or permits when you started your sole proprietorship, you must cancel them when you close the business. This includes county clerk's permits, state professional licenses, and occupational licenses.

4. Notify the Tennessee Department of Revenue.

If you registered your sole proprietorship with the Tennessee Department of Revenue for tax collection or payments, notify them that you have closed your business. If you have a resale certificate, you must also send your suppliers a written notification that the certificate is no longer valid.

5. File final tax returns and close tax accounts.

Ensure you have met all of your final tax obligations. This includes business tax, sales and use tax, franchise and excise tax, liquor-by-the-drink tax, and tangible personal property taxes, if applicable. After paying your final taxes, follow the Tennessee Department of Revenue's requirements to close your tax accounts. Contact the department to determine whether you need to take any additional action.

If your business used a federal tax identification number, also called an employer identification number (EIN), notify the Internal Revenue Service that the number is no longer in use by mailing a letter with your business name, the EIN, the business address, and the reason for closing your tax account according to the instructions here.

6. Be prepared to provide tax and financial information to business and tax authorities upon request.

After winding down your business, keep your financial and tax records for at least seven years from the end of the business's last fiscal year. Doing so will prepare you for any audit or information requests.

If you have questions about these steps or want legal advice as you work through the process of closing your Tennessee sole proprietorship, contact a Tennessee-licensed business law attorney.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.