Is It Difficult to Discontinue a Sole Proprietorship?

By Wayne Thomas

Since many owners choose to structure their business as a sole proprietorship due to its ease in startup, it might seem obvious that closing down the business is equally simple. However, because company assets as well as debts are tied to the owner, matters can get complicated as all obligations and taxes must be taken care of before the company can be officially dissolved. Other, less difficult tasks can include the surrendering of industry and local licenses and the cancellation of Doing Business As names and Employer Identification Numbers.

Dissolution Process

Because a sole proprietorship and the owner are one, discontinuing business operations is more straightforward than it would be with an independent legal entity, such as a corporation. The owner can make the decision to call it quits by himself, without having to consult with co-owners and follow the procedure outlined in the articles of incorporation. In addition, no dissolution paperwork needs to be filed with the state and the owner has complete control in winding up affairs and shutting the business down.

Satisfying Business Debts

The owner of a sole proprietorship remains personally responsible for all business debts, which means that any outstanding obligations must be satisfied before the company can officially shut down. This is generally accomplished by liquidating business assets; however, if this is not enough to satisfy the creditors, the owner's personal property and assets may be used.

Ready to start your LLC? Start an LLC Online Now

Canceling Licenses and Permits

Additional steps may be required of a sole proprietor if operating in a certain industry or doing business under a name other than her own. These tasks are routine and generally do not take much time or effort. For example, if the owner was required to obtain a state license as a funeral director, the license may need to be surrendered upon the ending of business operations. Also, if the owner has been operating with an alias or "doing business as" name, the state registration may be cancelled.

Tax Duties

Like the payment of debts, any outstanding taxes, including sales and payroll, must be paid before a sole proprietorship closes, otherwise the owner may face personal liability. One advantage the owner enjoys with the sole proprietorship is that no separate tax form must be filed. Instead, the owner files Schedule C along with his return, including the final numbers for income and expenses. Cancellation of the Employee Identification Number can be accomplished by written request to the Internal Revenue Service. Certain states may require additional forms for local taxes.

Ready to start your LLC? Start an LLC Online Now
Dissolution of Sole Proprietorship


Related articles

Similarities Between Sole Proprietorships and Partnerships

If you are interested in sending a message that you are willing to take personal responsibility for the success and failure of your company, you may pursue either a sole proprietorship or a partnership. Both business entities are appropriate for those interested in smaller, non-corporate business structures with fewer regulations. Compared to corporations, partnerships and sole proprietorships are relatively easy to form and are not responsible for corporate income tax.

Explanation of the Advantages & Disadvantages of a Proprietorship

The decision regarding how to structure a business is one of the first and most important decisions a business owner will make. Each separate form of business has its unique set of advantages and disadvantages, and the business owner must evaluate the relative pros and cons of each when deciding which form to choose.

The Procedure to Transfer a Business Proprietorship

A sole proprietorship is a business entity that functions as an alter ego of the owner. The proprietor holds business assets in his own name and is personally responsible for all business obligations that have been incurred. Transferring the business is a process that involves transferring assets from the proprietor to another business entity and satisfying obligations in such a way that ends the original proprietor's liability.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

DBA as a Sole Proprietorship in Massachusetts

Naming a business is often a very important step from a branding perspective. In Massachusetts, business registrations ...

Can a Sole Proprietor Have a Business in Multiple States?

For new business owners, complying with all of the laws in one state can be tricky. Owners who wish to conduct business ...

Advantages & Disadvantages of a Limited Liability Company

A limited liability company, or LLC, is an entity that offers both advantages and disadvantages to a business owner. ...

Procedure for Change in the Ownership of a Sole Proprietorship

A sole proprietorship is owned and operated under the responsibility of a single owner. All of its business assets and ...

Browse by category
Ready to Begin? GET STARTED