Retired Couple Walking on Beach
Posted November 04, 2021
| Updated May 23, 2022

How to Retire When You Own Your Own Business

How many small business owners think about retirement when starting their businesses? Not many, which is understandable since all efforts are generally focused on growing the business, not leaving the company. However, at some point, all entrepreneurs want to know how do you retire when you own your own business?

The answer depends on what the business owner wants from the business, whether other people are involved, state regulations, and how the company is structured. Let’s break it down.

Retiring Strategies

Small business owner retirement strategies may include:

  • Selling the company to a buyer who continues to run the business
  • Selling off the company’s assets, therefore closing the business for good
  • Handing the business down to a family member
  • Simply retiring (depends on the business’s legal entity)

Of course, there are other options, such as selling the business to employees or retiring but staying on in some advisory role. To make the transition as smooth as possible, you must know your options and plan ahead. So let’s tackle the topic by business structure.

Retiring From a Sole Proprietorship

The simplest business structure to form and retire from is the sole proprietorship. There are typically no investors or employees to worry about, so you can pay off your debts, sell the business’s assets, and then inform customers and vendors about the sale.

If you sell your property or assets, you will need to file your final business tax return and additional tax forms. Although most sole proprietors use their social security numbers as a tax identifier, if the Internal Revenue Service (IRS) assigned an employer identification number or federal tax id, the business owner must send the IRS a letter announcing the closure. The letter should include the company’s legal name, the EIN, the business address, and the reason for the account closure. Finally, if you intend to retire from working, you must inform Social Security.

Retiring from a Partnership

When partners are involved, closing a business gets a bit more complicated. First, the partnership agreement created by the partners should outline the steps for a partner leaving the business. The loss of one partner does not necessarily mean the company’s closure; however, what happens to the partner’s share of the business is an important consideration. Will the retiring partner be able to sell their shares to an outside party, retain the shares, or be bought out by any remaining partners?

Also, to protect yourself from future liability, it’s crucial to formally file a retirement notice from the partnership with specific dates for retirement. Have your attorney help you with the exact wording so the retiree is protected from the company’s liabilities and the partnership is protected from any liabilities associated with the retiring partner.

Finally, check with your state to determine if there are any issues to tackle when a partner retires from a partnership. For example, without a partnership agreement, some states may require the partnership to dissolve. However, if the company can show due diligence by producing a partnership agreement outlining the procedures for retirement, the partnership should be able to carry on with the existing or new partners.

Retiring From a Limited Liability Company (LLC)

Once again, having documented procedures for retirement helps make the transition smoother for everyone involved in the Limited Liability Company (LLC). LLCs file an Operating Agreement with the Secretary of State’s office. An LLC Operating Agreement is an official contract documenting the management and ownership of the company. It outlines how much of the company each member owns, the members’ voting rights, how profits and losses are distributed among the LLC members, and what happens when someone wants to leave the business (including what happens to the retiring member’s shares).

Because LLCs are regulated by the state in which the company resides, what happens when an LLC member wants to retire varies by state. For example, in California, once a formal intent to withdraw is submitted to the other members, any member is allowed to withdraw, resign, or retire from the LLC despite restrictions in the LLC’s operating agreement. In any case, a new operating agreement should be filed with the state to reflect the change in ownership.

Retiring From a C Corporation

What happens to a corporation when the owner retires? The C Corporation is an official legal entity separate from its owners and regulated by the state in which it resides. Ownership is through holding stock, and the owners are employees of the corporation, giving them a significant degree of personal liability protection.

As employees, owners can retire, and (in theory) the company can continue in perpetuity. The retiring member should submit their resignation from the company and its board of directors, and then new board members are voted in (if need be). All changes to management and board personnel should be indicated in the corporation’s meeting minutes. Like in the LLC, the corporation must file new Articles of Incorporation and Corporate Bylaws with the state.

It is not necessary for the retiring business owner to thoroughly wash their hands of the business. In many cases, the business owner holds onto their stock and can take a role on the board of directors to stay connected to the company.

Selling a Business to Retire

You may need to dissolve your company completely before selling it. For example, if your business is formed as a corporation or LLC, you must dissolve your business entity by getting two-thirds of the voting shares to agree on the dissolution (for an LLC, it depends on what is documented in the Operating Agreement).

Once you’ve decided to dissolve and sell the business, you must make sure you file a notice with the state, file your final tax returns, and notify the IRS. The new owners will need to file for their Federal Tax ID and file the proper paperwork with the government. Failure to file appropriate documentation may result in taxes, penalties, and other fees.

If you’re asking yourself, “Can I retire and still own a business?” the answer is yes, but social security benefits get complicated. Check with Social Security or your accountant to figure out the best path for your retirement.

When you’re ready to dissolve your business or start a new one, CorpNet advisors are here to help file the proper paperwork and take away some of the stress.

<a href="" target="_self">Nellie Akalp</a>

Nellie Akalp

Nellie Akalp is an entrepreneur, small business expert, speaker, and mother of four amazing kids. As CEO of, she has helped more than half a million entrepreneurs launch their businesses. Akalp is nationally recognized as one of the most prominent experts on small business legal matters, contributing frequently to outlets like Entrepreneur, Forbes, Huffington Post, Mashable, and Fox Small Business. A passionate entrepreneur herself, Akalp is committed to helping others take the reigns and dive into small business ownership. Through her public speaking, media appearances, and frequent blogging, she has developed a strong following within the small business community and has been honored as a Small Business Influencer Champion three years in a row.

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