Closing a business
There are many reasons why you might close your business but when you do, there are also several tasks you must complete.
Licence and registration cancellation
It can cost you money if you don't cancel your business and tax registrations and licences correctly.
Here are the key things you need to address.
Any business using a registered business or trading name that ceases trading must advise the Australian Securities and Investments Commission.
To cancel a business name you will need an ASIC key to access the business name account details online. If you do not have an ASIC key linked to your business name, contact ASIC's client contact centre on 1300 300 630 to arrange for an ASIC key.
There are specific legal requirements if a partner wishes to retire or dissolve the partnership. There can be serious financial liabilities if these requirements are not followed. You should consult your lawyer to advise you and prepare an agreement for dissolution of the partnership.
You must make a formal application to the Australian Securities and Investments Commission (ASIC) and pay an application fee to deregister a company.
Other licences, permits and registrations
The range and types of licences, permits and registrations that will need cancelling will depend on the type of business and activities. Cancellation may involve all three tiers of government – federal, state and local.
- ABN registration – make sure you have completed all of your online transactions at the ATO before you do this.
- GST registration within 21 days of ceasing the business
- payroll tax registration by notifying Revenue SA.
Things to consider when closing a business - Australian Taxation Office
Business premises and lease obligations
There is likely to be a range of lease obligations you will need to cancel, finalise or transfer as part of closing your business. These may include leases on premises, cars, equipment and furniture.
Business premises lease
Check the exit arrangements on the lease for your business premises. You may be liable for rent and other costs until the end of the lease term, even if your business has stopped trading.
The most common solution is to get the lease transferred - or assigned - to a new tenant or to sub-lease the premises. However, you will need to check the terms and conditions of your lease and be aware that there are risks involved in these processes.
If you need information or advice about your lease, contact your lawyer or contact the Small Business Commissioner
Other notifications when closing your business
There are likely to be other leases and commercial arrangements that will need to be terminated or finalised, including:
- leases on cars, office equipment, machinery, furniture
- notifying suppliers, business associates, customers and clients of your closing date
- organising disconnection of utilities and services such as phone, gas, electricity, water
- planning how to sell off remaining stock and assets
- closing bank accounts and paying outstanding bills.
Professional indemnity insurance
If you have been operating a business where you require professional indemnity insurance, you need to ensure you continue that insurance after you close the business. If you do not maintain the insurance cover you may be personally liable for any damages and costs if you are sued by a former client.
Even though you are no longer in business, former clients can still sue you over past events. If you do not maintain current insurance you will not be covered for issues that occurred while you were operating the business, even though you had applicable insurance at the time.
Employee issues and obligations
If you are closing your business (or when employees are not transferring with the business as part of the sale of the business) you have obligations to your employees in finalising their employment.
You will need to finalise payment of wages and salaries, any accrued leave, superannuation contributions and any termination payments due. Also there will be related tax obligations to finalise.
Key issues to consider
Employee or independent contractor?
Final payment entitlements and your obligations will depend on whether the worker was an employee or an independent contractor.
Pay As You Go (PAYG) tax
Calculate final PAYG amounts for employees and submit to the ATO.
Use the ATO's tax withheld calculator
Fringe Benefits Tax (FBT)
Calculate any outstanding FBT for employees.
Calculate any final superannuation contributions owing and pay by the quarterly cut-off date.
Eligible Termination Payments (ETPs)
ETPs apply only to employees and not to independent contractors. You will need to calculate payments according to the relevant employment agreement or award.
ETPs are taxed differently from other payments.
Bankruptcy and liquidation
If a business is in financial difficulty, the last step in paying creditors and dealing with debt is sometimes declaration of bankruptcy or liquidation of the business assets.
Bankruptcy is normally the term applied to an individual or sole trader, whereas liquidation normally applies to a company in receivership or administration.
If you are in financial difficulties and contemplating bankruptcy or liquidation, contact your accountant and legal adviser.