How to Close a Company: 5 Ways a Company Can End and Who Controls Each

Small corporations end in different ways. The stockholders might vote to dissolve. The state might dissolve them for missed filings. Owners can ask a court to dissolve, and creditors can force a company into bankruptcy, where the trustee usually sells the assets. State law also allows a company to turn the business over to an assignee for sale and distribution of assets. No matter how the end comes, closing a business does not erase any debts.

Formally End a Company

What is simple with one owner can get messy with more. In Delaware, a majority of the whole board in a corporation adopts a dissolution resolution that can be approved by a majority of all the outstanding voting stock; for LLCs, more than two-thirds of the profits interest can take the LLC apart, unless the operating agreement says otherwise. A dissolved Delaware corporation continues to exist for three more years to wind up its affairs. A lawsuit against the business may continue. Any rejected creditor must file a lawsuit within 120 days of the company’s notice, or miss out altogether.

Whether you operate as a corporation, LLC or any other structure separate from your personal identity, the debts of the entity belong to the entity. If you sign a guarantee, borrow individually, or pledge personal property, that debt can follow you.

If the owners do nothing, the state might end the corporation by law. State law calls this “administrative dissolution”. This happens most often when the company misses an annual report or payment of franchise taxes, or when the registered agent disappears. Washington State gives 120 days after notice to file the missing report, or the corporation will be dead. Letting a state filing lapse can be risky. Even if the LLC or corporation has given up all its assets, a company not dissolved in every state it is registered in may owe money in taxes, and filings still come due. And the IRS keeps every EIN open until it gets all the returns owed, and all the taxes paid.

Closing the door behind you, leaving the space or closing the bank account does not formally end a company. If you want a clean break, you have to do it right with paperwork. You have final payroll tax filings, federal income and employment returns still due.

The court may also be the one to bring the hammer down -- even if the owners do not want that. At least in Washington, when a corporation is insolvent, a creditor with an unpaid judgment, or an admitted debt in writing, can ask a court for judicial dissolution of the corporation. Owners can use the court too. Any member or manager can ask the Delaware Court of Chancery to dissolve an LLC when it is not reasonably practicable to carry on the business under the LLC Agreement.

Chapter 7 bankruptcy is the fourth way to close a business. The bankruptcy trustee gains control of the nonexempt assets and sells them to pay creditors, always by following bankruptcy priorities. It costs $338 to file the forms with the court. Only individuals get a fresh start; corporations and LLCs do not. Chapter 7 creates an estate of assets for the trustee to liquidate, instead of letting creditors collect one by one. Businesses do not get to decide whether they face involuntary bankruptcy. Creditors can force them to do it, with normally at least three creditors, with undisputed unsecured claims totaling at least $21,050 since April of 2025.

Chapter 11 can fit a complicated shutdown too. It helps when there is valuable property, or contracts, or a whole operation that a buyer might want intact. The court watches over the company, which generally stays in possession to execute a bankruptcy plan. Qualified small businesses might use Chapter 11’s Subchapter V. When the doors close at the store, a small company without many assets may not see a lot of use in Chapter 11. When a company still has property to sell, existing contracts, secured debt to negotiate, and operations worth buying -- then Chapter 11 might help the business close by liquidation.

There is yet one more way to close a company. It is state law, not bankruptcy. A company in financial trouble can transfer its assets to an independent assignee, who sells them and pays creditors. There is no automatic stay stopping collection by creditors.

Don’t Miss the Personal Guarantee

None of the five ways of closing a business cancels the personal guarantee by the owner. Many times, landlords, banks and credit card companies require owners to personally guarantee the business debts. When the business fails, the creditors can pursue the person who signed that guarantee. A company’s bankruptcy does not discharge it. The owner who signed the guarantee may need to consider personal bankruptcy as a possibility. Payroll taxes follow people around too. Anyone responsible for payroll tax withholding, who willfully fails, can face a personal penalty equal to the whole amount of what remains unpaid.

A sole proprietorship has no separate identity apart from its owner, so business debts stay the owner’s; it cannot file bankruptcy as a business entity. When a sole proprietor files Chapter 7 bankruptcy, business and personal assets combine into one bankruptcy estate, subject to exemptions. The debts of both the business and the person, if qualified, can be discharged together. Individuals can file for Chapter 13, with a repayment plan over usually three to five years. Chapter 13 protects only individuals, and the company has no right to it.

It is better to pick your path ahead of time than to let a creditor or a state pick it for you. After you have decided, the first step is to make a complete list of inventory, receivables, equipment, deposits and anything else you have left. Even with the door closing, some of those assets may already secure a loan, which limits what you can do with them. Creditors or courts may ask why you did not pay one instead of the other, or moved assets between accounts, at some point later on.