How to Close a Business in Texas: 5 Steps With the Secretary of State and the Comptroller

If your Texas company is a for-profit corporation or limited liability company (LLC), and you want to close down your business, you need to “wind up” the affairs of the company. Both the Secretary of State (SOS) and the Texas Comptroller’s office need to be notified of the shutdown. You cannot close a Texas company at the Secretary of State when you owe money in state taxes, so the Comptroller comes first. Closing itself means filing a Certificate of Termination with the Secretary of State. Even if you no longer intend to do business, the company will still legally exist in the eyes of the state until it is filed.

There are a few steps.

• First, tie up any loose ends: wind up and pay your debts.
• Then you have to catch up on any overdue reports or taxes.
• Next you file a final franchise tax report.
• Then you get something called a Certificate of Account Status from the Comptroller, which says that you’re all caught up with taxes.
• Once you have it, you can file a Certificate of Termination with the Secretary of State.

Winding up means liquidating assets and using any cash you have to pay your remaining bills. After that, pay any vendors who are still owed, as well as any other creditors you owe, such as the landlord, tax authorities, and other people the company owes money to. But when you wind up in Texas, the law says owners don’t get anything until the debts are paid, or funds are set aside for payment of debts. If the company has not enough money to pay off all creditors, state law provides that the company’s property should be applied as far as it will go to pay a just and equitable dividend to creditors. That means trying to be fair to all creditors. Just how to wind up, however, is not something the Secretary of State can help with.

Next you have to file all overdue annual franchise tax reports and Public Information Reports (or Ownership Information Reports) and pay any unpaid tax, penalties, and interest due. You also need to close all other tax accounts at the Comptroller, not just franchise tax. If you have a sales tax permit, you must file a final sales tax return through your last day of business. If you still have inventory you have not sold, you may owe use tax on it if you keep or give it away.

You must file the final franchise tax report and pay any franchise tax that is due. Your final franchise tax report should include the period from the day after the last annual accounting period you reported ended to within 60 days of your termination date.

Certificate of Account Status

Once you have completed all the required steps for closing your accounts at the Comptroller, ask them to issue you a Certificate of Account Status. The Certificate of Account Status lets the Secretary of State know that there are no outstanding tax issues. You can ask for this Certificate of Account Status by logging into your Webfile Account or by filing Form 05-359. Form 05-359 asks you for the legal name and Secretary of State file number of your LLC or corporation, as well as your 11-digit taxpayer number. This 11-digit number is different from your EIN. You need to say whether revenue is at or below the No Tax Due threshold, or part of an affiliated group. You can ask for your Certificate of Account Status to be faxed, emailed or mailed.

The Comptroller will issue you Form 05-305. It’s good only until December 31 of the year it is issued. It must be valid on the effective date you put on the termination filing. What this means is that if your Certificate was issued in May, for example, and you wanted to close your company in the following January, then your Certificate would have expired before the Secretary of State accepted the Certificate of Termination. Don’t try to submit a printout of your account status web page instead. The Secretary of State will not accept it.

Form 05-359 asks if you want your business reinstated, if it was forfeited for not filing franchise tax reports. If you do, request a Tax Clearance Letter on Form 05-391 from the Comptroller, after paying all of the back taxes, penalties and interest due. With the letter in hand, submit Form 801 Application for Reinstatement to the SOS, along with the reinstatement filing fee of $75.

Certificate of Termination

After you’ve gotten your Certificate of Account Status from the Comptroller, send in Form 651, along with the filing fee and a copy of the 05-305 Certificate of Account Status. This form is called a Certificate of Termination and it closes the Texas corporation or LLC. Form 651 can be filed online at the SOS website or as a paper copy. It asks for the entity name. You also need to say what type of legal entity you are shutting down, and when you were formed, plus the names and addresses of governing persons. It needs to say the event requiring termination. Your company can terminate effective on the filing date, on a future date up to 90 days after signing, or upon a specified future event.

Form 651 has a $40 filing fee. Send two copies, along with payment. You can mail it, fax it, or deliver it to the Secretary of State in Austin. For paper filings or faxing in, payment must be on a Form 807. The state will reject the filing if the event requiring termination hasn’t happened yet or the Certificate of Account Status is missing.

Sue or Be Sued on Existing Claims

You might think closing the company puts you beyond the reach of any claims about your old business. Not always. Termination doesn’t end lawsuits over claims that already existed. Your company can still sue or be sued on existing claims for three years after the termination effective date, unless a claim has been extinguished. If a suit is filed during that window, the company survives until all judgments are carried out.