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.

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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.

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Dissolution of Sole Proprietorship

References

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