Deciding to close down operations at a company you founded is never easy. This venture represents a lot of time, energy, and money. Shutting it down can feel like a major loss.
At the same time, though, it might come with some measure of relief. By the time you’re deciding to close up shop, you’ve probably had some difficult months — or even years. You’ve felt your runway slipping away and you might be, in some ways, ready to end this chapter.
That’s why we’re here. To give you the closure you need, it’s important you take certain steps. If you don’t, your tech company could come back to haunt you. We’ve heard from founders who’ve encountered problems years after shutting down.
To ensure your tech company doesn’t cause issues in your future, follow these steps.
#1: Explore other options before you close up shop
First, you need to make sure that shutting down is the right choice. Even if the situation feels dire, remember how much you’ve invested in getting your company built. Don’t pull the plug prematurely.
Assuming you’ve already explored pivoting your business model and restructuring your company, look outward. You might want to see if any other businesses would be interested in acquiring your company. If you have a proprietary value-add (e.g., your own technology or a unique intellectual property), you might be able to find an interested buyer.
Don’t rule out your customer base, either. Even if it’s been dwindling, another company might be more than happy to snap up the customers you still have.
If your company has investors, this is an important time to loop them in. They may be able to help you chart the best path forward by deciding if that’s selling your company or closing up shop.
#2: Satisfy your legal agreements
You can’t pull the plug on your own. If you’re running a corporation, you’ll need agreement from your Board to shut down operations. Specifically, you’ll want to come away with their approval for your company’s dissolution along with a plan of liquidation.
That’s not the only legal ramification of a closure, either. Before you advertise anything about your intention to close, review any contracts you have in place. That includes agreements with:
- Customers/clients
- Vendors
- Landlords
- Insurance providers
Specifically, look at any termination clauses. What kind of notice do you need to provide?
You also need to be mindful of your agreements with your employees. Review your employment contracts to see if there’s anything you need to do to satisfy those agreements before you close.
As a best practice, it’s helpful to give your employees at least a few months’ notice of your intention to close. Per the Worker Adjustment and Retraining Notification (WARN) Act, you need to notify employees at least 60 days before closing.
Give them the freedom to find other jobs in the interim. While your company might be shuttering, you still have your good name as a founder to protect. You don’t want things to go sideways, making you a pariah to investors or employees in any ventures you embark on in the future.
#3: Get rid of all assets
Before you can close your company, you need to zero out all of its assets. That means liquidating everything according to the plan you agreed to with your board. If anything is left unclear by that plan, turn to your cap table. It should illuminate who’s entitled to what.
Don’t forget about your tangible assets, too. You need to sell your office furniture, computers, other equipment, real estate, and anything else your company owns. Usually, you’ll apply any proceeds to any outstanding debt you have, then distribute it per your liquidation plan and cap table.
You’ll also need to get rid of any cash you have in your accounts. Distribute it per your liquidation plan and cap table, prioritizing paying off creditors if you haven’t already.
Once your accounts are at a $0 balance, close them.
#4: Comply with requirements from state and federal authorities
Generally, that means working with the appropriate authorities to close any accounts you have in your company’s name for:
- Payroll
- Workers’ comp
- Disability insurance
- State taxes (e.g., sales, income, franchise)
- Your employer identification number (EIN)
In some states, you’ll need to submit your final tax filing before you can close down. Whether that applies to your business or not, make sure you submit a final filing, and make sure it’s appropriately marked.
With the IRS, you do need to submit a final filing and get paid up on any taxes you owe for them to close your business account. You’ll also need to file some additional forms to close down in their eyes — and release your company from any further tax obligations.
Finally, to get your company off your state’s records and protect yourself from any future legal requirements there, you need to file dissolution paperwork.
#5: Wrap things up
In tandem with taking all of the steps required to legally dissolve your tech company, you also want to notify customers and vendors. You may want to make some sort of public announcement, too. At the very least, make plans to adjust your website and any other live marketing materials.
As you’re closing things up, transfer financial and employment records to a secure location. Keep them for seven years lest you need to settle anything with the IRS or applicable state authorities.
Finally, conduct a post-mortem. Life doesn’t stop after you close a tech company, and this season can provide some valuable insights to help you move forward. Document what went right and wrong so you can refer back to the lessons learned in future ventures.
Closing down a tech company might feel like almost as much work as starting one. It’s worth putting in this effort, though. If you don’t do everything right, you could pay for it — literally — down the road. From WARN Act violations to continuing tax obligations, you could be penalized for failing to follow proper protocols.
We can help you navigate what’s ahead. To talk with a team of accounts who specialize in tech companies — and have helped founders shutter ventures — get in touch with us.
