In Ohio, nearly all business owners run their business from one of two legal entities: either a limited liability company (“LLC”) or a corporation. Forming an entity under Ohio law is not a difficult task, but many business owners are not aware that once the entity is no longer needed the best course of action is to legally dissolve it.
The dissolution of an entity is a process that involves notification of certain agencies, the certification that all employment and other tax obligations of the business have been fully paid, and filing for dissolution with the Ohio Secretary of State. The process is slightly different for corporations vs. LLCs, or for profit vs. non-profit organizations. Generally, the dissolution process will be initiated once all final tax returns for the business that has been sold or wound down have been filed and all tax liability has been paid. This will usually occur within the year immediately following the end of the entity’s business operations, but could be a later time if tax returns are on extension or back taxes are owed.
The importance of timely dissolving the entity is to reduce exposure to potential liability for claims from past employees, vendors, or other creditors after the entity’s business operations have ceased. The timing of the dissolution is best determined in consultation with both the business’s legal counsel and its tax adviser.