William A. PriceAttorney at Law

www.growthlaw.comP.O. Box 1425

Warrenville, IL 60555Tel. 630-362-8840

Fax 1-800-630-4780Email: wprice@growthlaw.com

Closing A Business: A Checklist

1. Private Activity:

a. Find all accounts payable, accounts receivable (amounts, when due, contact information).

b. Invoice (if not already done) for any accounts receivable, set closing date for reasonable time after moneys expected to come in.

c. If money is available to pay due bills, pay same. If not, but other assets are available and owned by the business, realize on assets and pay all non-termination bills.

d. Prepare all final tax returns, in addition to closing-specific reports (see below).

e. Set aside a reserve for private closing costs and governmental charges due.

f. Prepare report of assets, liabilities, reports made, and final balance to each owner after all payments realized and paid, taxes and reporting done, and costs of closing covered.

g. Issue final distribution checks.

2. Governmental reports due:

a. IRS Tax Checklist (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Closing-a-Business-Checklist):

• Make final federal tax deposits o Electronic Federal Tax Paying System (https://www.eftps.gov/eftps/)

• File final quarterly or annual employment tax form. o Form 940, Employer's Annual Federal Unemployment (FUTA) Tax

Return (PDF) o Form 941, Employer's Quarterly Federal Tax Return (PDF)

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o Form 943, Employer's Annual Tax Return for Agricultural Employees (http://www.irs.gov/pub/irs-pdf/f943.pdf)

o Form 943-A, Agricultural Employer's Record of Federal Tax Liability (PDF)

• Issue final wage and withholding information to employees o Form W-2, Wage and Tax Statement (PDF)

• Report information from W-2s issued. o Form W-3, Transmittal of Income and Tax Statements (PDF)

• File final tip income and allocated tips information return. o Form 8027, Employer's Annual Information Return of Tip Income and

Allocated Tips (PDF) • Report capital gains or losses.

o Form 1040, U.S. Individual Income Tax Return (PDF) o Form 1065, U.S. Partnership Return of Income (PDF) o Form 1120 (Schedule D), Capital Gains and Losses (PDF)

• Report partner's/shareholder's shares. o Form 1065 (Schedule K-1), Partner's Share of Income, Credits,

Deductions, etc. (PDF) o Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits,

Deductions, etc. (PDF) • File final employee pension/benefit plan.

o Form 5500, Annual Return/Report of Employee Benefit Plan (http://www.dol.gov/ebsa/5500main.html)

• Issue payment information to sub-contractors. o Form 1099-MISC, Miscellaneous Income (PDF)

• Report information from 1099s issued. o Form 1096, Annual Summary and Transmittal of U.S. Information

Returns (PDF) • Report corporate dissolution or liquidation.

o Form 966, Corporate Dissolution or Liquidation (PDF) • Consider allowing S corporation election to terminate.

o Form 1120S, Instructions (PDF) • Report business asset sales.

o Form 8594, Asset Acquisition Statement (PDF) • Report the sale or exchange of property used in your trade or business.

o Form 4797, Sales of Business Property (PDF)

Tax issues to note:

• Recognition of gain or loss on dissolution or reorganization• Calculation of C corporation, S corporation, partnership gain/loss varies, as

does allocation. Basis calculation cash for corporations, cash and debt for partnership

b. State checklists:

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• Illinois Department of Employment Security: Prepare and file Form Employers Contribution and Wage Report (Form UI-3/40, Quarterly). For employers filing a paper-style report for 2014 and in future years, quarterly contribution and wage reports are made using Form Ul-3/40. Note: TaxNet is the preferred method for filing both monthly and quarterly reports. See also: Notice of Change (Form UI-50A) Employers use this form to report name, address, telephone, or other miscellaneous changes to the business. It is also used to close a business UI tax account.

• Illinois Department of Revenue: Prepare and file Form CBS-1, Notice of Sale or Purchase of Business Assets (http://tax.illinois.gov/taxforms/Reg/CBS-1.pdf). If a stock sale is used, then, after filing all required returns, file form TR-1, Request for Tax Clearance, http://tax.illinois.gov/taxforms/misc/clearance/ITR-1.pdf

• Prepare and file final income tax returns (individual and organizational).

• Secretary of State, Department of Business Services:

a. Domestic corporation: file BCA-12.20, Articles of Dissolutionb. Foreign corporation: file in own state, in Illinois file BCA-13.45,

Application for Withdrawal and Final Report

Note also: forms for domestic Articles of Merger, foreign Report following Merger or Consolidation

c. Domestic LLC: file LLC-35.15, Articles of DissolutionNote also: LLC-37.25, Articles of Merger

d. Foreign LLC: LLC-45.40, Application for Withdrawal-Foreign

d. NFP, LP, etc... have different forms. Note: Attorney General’s Office reports required to Charitable Trusts division for nonprofits

• Industry-specific regulators (e.g. IL Commerce Commission for utilities, Ill. Commissioner of Banks and Real Estate for such organizations, Ill. Department of Professional Regulation for same) have specific termination reports and forms for their regulated entities and individuals.

• Local governments (e.g. Chicago Department of Revenue) may also have final report/withdrawal forms, such as water department clearance for Chicago real estate sales, to verify all bills were paid. Chicago also has its own bulk sales tax clearance form.

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3. Conflicts Among Owners Around Final Distributions and Dissolution: Statutory Limits And Requirements

Remember that there may be notice of claims and statutory publication requirements which allow claims to be cut off after a period of time.

a. Business Corporations:

• 805 ILCS 5/9.10. Distributions to shareholders: Prohibits distributions leading to insolvency

• 805 ILCS 5/11.65. Right to dissent: Provides fair market value buyout if shareholder dissents in time on fundamental corporate change

• 805 ILCS 5/12.05. Voluntary dissolution by incorporators or by initial directors• 805 ILCS 5/12.10. Voluntary dissolution by written consent of all shareholders• 805 ILCS 5/12.15. Voluntary dissolution by vote of shareholders• 805 ILCS 5/12.20. Articles of dissolution• 805 ILCS 5/12.50. Grounds for judicial dissolution in actions by nonshareholders• 805 ILCS 5/12.55. Shareholder remedies: public corporations• 805 ILCS 5/12.56. Shareholder remedies: non-public corporations• 805 ILCS 5/12.60. Practice in actions under Sections 12.50, 12.55, and 12.56• 805 ILCS 5/12.65. Order of dissolution• 805 ILCS 5/12.70. Deposit of amount due certain shareholders• 805 ILCS 5/12.75. Known claims against dissolved corporation• 805 ILCS 5/12.80. Survival of remedy after dissolution• 805 ILCS 5/12.85. Criminal prosecution of dissolved corporation

b. Limited Liability Companies:

• 805 ILCS 180/25-30. Limitations on distributions• 805 ILCS 180/25-35. Liability for unlawful distributions• 805 ILCS 180/25-45. Known claims against dissolved limited liability company• 805 ILCS 180/25-50. Other claims against dissolved limited liability company• 805 ILCS 180/35-1. Events causing dissolution and winding up of company's business• 805 ILCS 180/35-3. Limited liability company continues after dissolution• 805 ILCS 180/35-4. Right to wind up limited liability company's business• 805 ILCS 180/35-7. Member or manager's power and liability as agent after dissolution• 805 ILCS 180/35-10. Distribution of assets in winding up limited liability company's business

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• 805 ILCS 180/35-15. Articles of dissolution• 805 ILCS 180/35-20 Filing of articles of dissolution• 805 ILCS 180/35-45. Events causing member's dissociation• 805 ILCS 180/35-50. Member's power to dissociate; wrongful dissociation• 805 ILCS 180/35-55. Effect of member's dissociation• 805 ILCS 180/35-60. Company purchase of distributional interest• 805 ILCS 180/35-65. Court action to determine fair value of distributional interest• 805 ILCS 180/35-70. Dissociated member's power to bind limited liability company

c. Partnerships

• 805 ILCS 206/406. Continuation of partnership beyond definite term or particular undertaking• 805 ILCS 206/601. Events causing partner's dissociation• 805 ILCS 206/602. Partner's power to dissociate; wrongful dissociation• 805 ILCS 206/603. Effect of partner's dissociation• 805 ILCS 206/701. Purchase of dissociated partner's interest• 805 ILCS 206/702. Dissociated partner's power to bind and liability to partnership• 805 ILCS 206/703. Dissociated partner's liability to other persons• 805 ILCS 206/704. Statement of dissociation• 805 ILCS 206/705. Continued use of partnership name• 805 ILCS 206/801. Events causing dissolution and winding up of partnership business• 805 ILCS 206/802. Partnership continues after dissolution• 805 ILCS 206/803. Right to wind up partnership business• 805 ILCS 206/804. Partner's power to bind partnership after dissolution• 805 ILCS 206/805. Statement of dissolution• 805 ILCS 206/806. Partner's liability to other partners after dissolution• 805 ILCS 206/807. Settlement of accounts and contributions among partners

d. Limited Partnerships (ULPA 2001)

• 805 ILCS 215/507. Right to distribution• 805 ILCS 215/508. Limitations on distribution• 805 ILCS 215/509. Liability for improper distributions• 805 ILCS 215/601. Dissociation as limited partner• 805 ILCS 215/602. Effect of dissociation as limited partner• 805 ILCS 215/603. Dissociation as general partner• 805 ILCS 215/604. Persons to dissociate as general partner; wrongful dissociation• 805 ILCS 215/605. Effect of dissociation as general partner

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• 805 ILCS 215/606. Power to bind and liability to limited partnership before dissolution of partnership of person dissociated as general partner• 805 ILCS 215/607. Liability to other persons of person dissociated as general partner• 805 ILCS 215/701. Partner's transferable interest• 805 ILCS 215/702. Transfer of partner's transferable interest• 805 ILCS 215/703. Rights of creditor of partner or transferee• 805 ILCS 215/704. Power of estate of deceased partner• 805 ILCS 215/801. Nonjudicial dissolution• 805 ILCS 215/802. Judicial dissolution• 805 ILCS 215/803. Winding up• 805 ILCS 215/804. Power of general partner and person dissociated as general partner to bind partnership after dissolution• 805 ILCS 215/805. Liability after dissolution of general partner and person dissociated as general partner to limited partnership, other general partners, and persons dissociated as general partner• 805 ILCS 215/806. Known claims against dissolved limited partnership• 805 ILCS 215/807. Other claims against dissolved limited partnership• 805 ILCS 215/808. Liability of general partner and person dissociated as general partner when claim against limited partnership barred• 805 ILCS 215/812. Disposition of assets; when contributions required

4. Merger and Acquisition

a. In General: Not a dissolution topic, unless part of planned termination of selling or buying entity after asset purchase (often buyer’s preferred option: takes no liabilities).

b. Internal sale: Organization shares may be purchased by ESOP: organization continues, though original owner out

5. Other Exit Strategies

• Venture investment: Capital contributions with “venture capital preferred” terms, not dissolution

• IPO: often requires shift to Delaware organization, single class of stock, other deal simplification

• Recapitalization: Terms and requirements depend on new or alternative capital source: “Shell” corporations may have built-in tax losses, other aspects that make them worth selling instead of closing

• Gifts: appreciated assets may be worth donating to avoid gain recognition. If whole organization is donated, with or without charitable trust ownership of same prior to donation, availability of charitable contributions deduction to

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family/owner may dominate your concerns. Also valuation, for appropriate income or gain recognition offset.

• Reorganization: It may be simpler to turn an organization over to others without a sale than it is to go through the process of filing final reports.

• Administrative dissolution: It may be cheapest of all to let the organization die automatically, if no tax returns are due, and all debts have otherwise been paid. Remember process in organizational statute for extinguishing claims by putting creditors on notice of dissolution, BCA section 12.75 and other statutes above if amount due in controversy for significant claims.

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