Common Mistakes to Avoid When Dissolving a Business
July 12, 2025
When it's time to close the doors on your business, it's not as simple as flipping a sign or locking the office for good. Business dissolution in Tennessee involves a mix of legal, financial, and administrative steps. Without careful planning, it's easy to overlook critical tasks, miss deadlines, or make decisions that can lead to lasting legal or financial trouble.
Many business owners focus on wrapping up day-to-day operations but forget that formal dissolution requires more than just shutting things down. Your business law attorney in Murfreesboro, Tennessee, can help you handle the process with concise, straightforward advice.
Failing to Follow Formal Dissolution Procedures
Once you've decided to close your business, you can't just walk away. You’ll need to follow the formal dissolution process with the help of a business law attorney to protect yourself from future liability and tax issues. Some common mistakes in this area include:
Skipping the formal vote or agreement: If your business is a corporation or LLC, you typically need a vote from shareholders or members to dissolve. Missing this step can make the dissolution invalid.
Not filing articles of dissolution: Businesses in Tennessee must file specific forms with the Secretary of State to make the closure official. Forgetting this means the business might still appear active in state records.
Ignoring operating agreements or bylaws: Your internal documents may outline how dissolution should happen. Not following them could lead to internal disputes or legal challenges.
When you skip formal steps, you leave doors open for creditors, tax agencies, and even former partners to come after you long after you thought the business was done. Proper filings and documentation with the assistance of a business law attorney will help you move on with peace of mind.
Overlooking Outstanding Debts and Obligations
Once you've decided to close, your financial house needs to be in order. Outstanding debts and obligations don't disappear when your business dissolves. Here are some key issues business owners often miss:
Unpaid vendors and contractors: Failing to pay everyone you owe could lead to lawsuits or damage your reputation in the local business community.
Leases and service agreements: You may be locked into rental agreements, software licenses, or service contracts. These need to be properly closed or transferred.
Outstanding taxes or payroll obligations: Businesses often owe payroll taxes, sales tax, or franchise taxes when they dissolve. These obligations can result in penalties if not paid.
A clear exit plan should include a list of all debts and obligations with steps to resolve them. This isn’t just good business—it’s also key to protecting your personal assets, especially if you’ve signed any personal guarantees.
Forgetting to Cancel Licenses, Permits, and Registrations
Licenses and permits won’t cancel themselves, and letting them sit open can cost you down the line. In some cases, you might even face fines or continued billing. Here are some items that frequently get missed:
Local business licenses and zoning permits: These should be formally canceled with the city or county office where your business operated.
State-level permits: Depending on your industry, you may have state-issued licenses that also need to be closed.
Professional licenses tied to the business: If your business holds industry-specific certifications, don’t forget to update or withdraw them properly.
Closing out these items makes it clear that your business is no longer in operation and helps limit future obligations or confusion.
Not Properly Notifying Employees and Contractors
Letting go of your employees is one of the toughest parts of closing a business, but it needs to be done professionally and with legal care. Poor communication can lead to confusion, mistrust, or even wrongful termination claims. Here are some mistakes to watch out for:
Not giving appropriate notice: Depending on the size of your business and employee count, federal or state laws may require written notice before termination.
Failing to pay final wages or benefits: Make sure all paychecks, bonuses, and any unused vacation time are handled according to Tennessee labor laws.
Overlooking contractor wrap-up: Independent contractors should also be formally notified that their services are no longer needed and that their final invoices will be paid.
Being transparent and prompt helps you maintain goodwill and avoid legal issues during the wind-down process.
Mishandling Business Assets
Once you're done operating, your assets don’t just disappear—they need to be accounted for and distributed properly. That includes inventory, equipment, vehicles, and even digital assets. Here some some mistakes business owners often make in this regard:
Failing to document asset sales or transfers: If you sell or transfer items without clear records, it can trigger tax issues or disputes with partners.
Overlooking intellectual property: Trademarks, websites, and software licenses often have real value. Forgetting to sell or transfer them can lead to waste or misuse.
Not paying off secured debts tied to assets: If your equipment or vehicles are tied to loans or leases, you can’t just give them away or sell them without addressing the terms of those agreements.
A careful asset inventory and liquidation plan helps make the most of your remaining value and keeps you in compliance with creditors and tax agencies.
Ignoring Tax Responsibilities
Taxes don’t stop just because your business is closing. In fact, dissolution usually triggers a few additional filings and responsibilities that shouldn’t be ignored. Some common tax-related errors include:
Not filing final tax returns: You’ll need to file final federal and state returns, and in many cases, check a specific box to mark that it's the last return.
Forgetting final payroll tax reports: If you've had employees, you’ll need to file final payroll forms and submit any remaining employment taxes.
Leaving business bank accounts open: Until all tax obligations are settled, don’t close your bank account or shred your financial records. You may need them for audits or correspondence.
Failing to finish tax duties can come back to haunt you, especially if penalties or interest start stacking up. A tax advisor or business law attorney can help make sure nothing slips through the cracks.
Not Communicating With Creditors and Customers
Dissolving a business without letting people know can damage your reputation and lead to frustration for anyone who’s owed money or trying to follow up. Some communication breakdowns include:
Not notifying creditors in writing: You should send formal notice to creditors about the dissolution and offer instructions for submitting final claims.
Leaving customer contracts hanging: Clients may be depending on your services or waiting on deliveries. Clear communication helps maintain trust and avoids possible legal claims.
Overlooking refund or warranty obligations: If your business issued warranties or promised future services, you may still be on the hook for those unless you've made other arrangements.
It’s tempting to go quiet when you’re closing shop, but proactive outreach can prevent problems and help close things out on a better note.
Rushing the Process
Dissolving a business takes time, and trying to speed through it often leads to mistakes. Each step in the process builds on the one before it, and skipping ahead can make cleanup harder down the line. Rushing the process can lead to:
Missed paperwork or filings: Deadlines matter, and forgetting even one form can delay the dissolution or trigger penalties.
Incomplete financial wrap-up: You might miss important transactions, debts, or reimbursements by closing things too quickly.
Inadequate planning for personal transitions: If you’re moving on to a new business or career, closing too fast can hurt your ability to use old contacts, customers, or assets strategically.
It's better to take a little more time upfront than to deal with the mess of a half-finished closure.
Contact a Business Law Attorney Today
Closing a business is rarely easy, but it doesn’t have to be chaotic. Reaching out to a business law attorney can make the process smoother and more secure from start to finish. We serve clients in Murfreesboro, Tennessee, only a few blocks away from the courthouse. Reach out today to get started with a consultation from McCarter | East PLLC.