What To Do If Your Business Goes Bankrupt

No business owner likes to see his or her business fail, but actually only a small percentage of businesses last three or more years.  Most new businesses close with losses in the first three years of operation.  Trial and error is a big part of entrepreneurship.  Almost every successful business owner has also participated in some business ventures that did not succeed.  Closing a business is not quite as easy as establishing one, but it is fairly simple.  It’s not as easy as just doing an EIN lookup or going online to verify an EIN number.  Business laws do, however, favor entrepreneurship and do not make it unnecessarily hard to move on from unsuccessful business projects.

How to Close a Business

When you know that your company is going out of business, file its tax return at tax time, as usual.  The difference is that you should include the word “final” on the tax return.  This way, the IRS will know that your business will not continue to operate the following year.  Once you have filed the return, notify the IRS that you want to surrender your EIN number.  This way, in the future, the IRS can give that EIN number to another business if necessary.

Liquidating Assets and Paying Debts

What to do about your company’s debts depends on which entity type you have.  If it is a C-corporation or LLC, then you can just liquidate the company’s assets and pay as many of its debts as possible.  With an LLC, the law cannot require you to use your personal assets to pay off the debt obligations of a business.

The first step to closing a bankrupt business is notifying the IRS of your plans to have the business stop operating.