Sad but true: sometimes a business just doesn’t work out. It might be because the economy is tanked, or because there are cheaper products than yours on the marketplace. It’s better to acknowledge that it’s time to close a business as soon as you realize it than to keep losing money while you try to make it work.

Still, dissolving a business is more than just the decision to shut it down and letting your vendors and clients know. Here are the steps you must take to close your business the right way and remain compliant with your state.

Step 1: Dissolve Your Business Structure

Assuming you were operating as a corporation or LLC, you are legally required to dissolve that business entity. You do so by holding a meeting with all business partners or Board of Directors and having them vote on closing the business. Make sure you record the final vote in your meeting minutes.

What You Need to Know:

  • If you issued shares for your corporation, you need ⅔ of the voting shares to agree on the dissolution.
  • If no shares were issued, it’s the Board of Directors who must agree on dissolution.
  • If you run an LLC, check the dissolution requirements in your state’s Limited Liability Company Act.

Step 2: File Your Articles of Dissolution

Once the vote is confirmed and recorded, file a form called “Articles of Dissolution” or “Certificate of Termination” with your state’s Secretary of State’s office (assuming that’s where your corporation or LLC is filed).

What You Need to Know:

  • Filling out this paperwork carefully can help you avoid delays and issues.
  • CorpNet can help with this filing.

Step 3: Collect Accounts Receivable

You’re going to have some bills to pay soon, so it’s a good idea to collect all the money that is owed you now. You may need to be aggressive in getting your money, especially if you have many past due invoices. You may need to offer a discount to collect on as much as you can just so you close the business with enough cash to pay your bills.

What You Need to Know:

  • Try to collect the money owed before announcing that you’re closing to increase the odds of getting your money.
  • You can also sell your accounts receivable to a factor, which will get you some — but not all — of what’s owed.

Step 4: Sell Your Assets

Another way to boost your cash before closing is to sell all assets and inventory. First, host a major sale and sell as much of your inventory as you can before announcing that you’re closing. After that, you can hold liquidation sales with steeper discounts.

What You Need to Know:

  • Craigslist is a great place to sell office equipment, machines, and supplies.
  • You can also hold an auction to attract other business owners.

Step 5: Pay Off Your Debts

If you owe vendors or service providers, close out any accounts payable now. If you can’t pay them all, prioritize them and pay what you can. Talk to your attorney if you can’t pay everything.

What You Need to Know:

  • You must settle your business debts before you can distribute money or assets to Board members.

Step 6: File Your Final Payroll Taxes

Once you’ve paid your employees for the last time, submit your payroll forms like you normally do and pay your payroll taxes.

What You Need to Know:

  • If you can’t pay your payroll taxes, file Form 656 with the IRS to make an Offer in Compromise and ask to reduce what you owe.
  • If you want to set up an installment plan fill out IRS Form 433-A.

Step 7: Pay Your Sales Tax

Submit your final state sales tax forms with the taxes you have collected up to closing your store.

What You Need to Know:

  • Find out from your state tax agency what you need to do to close your tax account.

Step 8: File Your Final Income Tax Return

For both LLCs and corporations, make sure to check the “final return” box when filing your tax forms. Also, report shareholder allocations (and losses) for partners on Schedule K-1.

What You Need to Know:

  • Check the deadline for submitting your final tax paperwork. For LLCs, you’re required to file by April 15 the year after you close. For corporations, you have two months and 15 days to file.
  • You’ll also need to close your Employer Identification Number account.

Step 9: Cancel Business Licenses or Permits

Another necessary and legal step to take in dissolving your business is to notify the business authorities in the county where your business is located and cancel your business license, seller’s permit, and any other permits your business holds.

What You Need to Know:

  • Not canceling your permits and licenses may cause you to rake up fees or taxes, so make sure you take care of this promptly.

Step 10: Distribute Cash and Assets

If there is any money left — or if there are assets remaining in the business — now is the time to distribute it among your business’s owners. This can happen only after all taxes, payroll, debts, and loans have been paid.

What You Need to Know:

  • For LLCs, distribute money to all partners in proportion to their share of the business.
  • For corporations, allocate assets among shareholders based on the number of shares they own.

Yes, it’s a lot of footwork to dissolving a company, but once you’ve taken care of these 10 steps, you can move forward with your life.