Closing a business involves several legal and administrative steps to ensure that the business is properly dissolved and that all obligations to the government and other entities are fulfilled. Here’s a step-by-step guide to closing a business in the Philippines:
Step-by-Step Guide in Closing a Business
1. Decision and Documentation
Board Resolution: If the business is a corporation, pass a board resolution to dissolve the company. For sole proprietorships, the owner decides.
Minutes of the Meeting: Record the decision in the minutes of the meeting.
2. Clear Outstanding Liabilities
Settle Debts: Pay off all outstanding debts and obligations to creditors.
Notify Stakeholders: Inform employees, customers, suppliers, and other stakeholders about the business closure.
3. Inventory and Asset Liquidation
Conduct Inventory: Conduct a physical inventory of all assets.
Sell Assets: Sell any remaining inventory and business assets.
Distribute Proceeds: Distribute proceeds from asset sales to settle any remaining liabilities.
4. Tax and Government Compliance
BIR Clearance: Secure a BIR clearance or “Tax Clearance Certificate” by doing the following:
File Final Tax Returns: File the final tax returns (Income Tax, VAT/Percentage Tax, and Withholding Taxes).
Pay Taxes: Settle any remaining tax liabilities.
Apply for Closure: Submit a request for closure to the BIR and surrender the Certificate of Registration (COR).
Cancel ATP: Cancel the Authority to Print (ATP) receipts/invoices.
Other Government Agencies: Depending on the business type, notify and secure clearances from other government agencies such as:
DTI: For sole proprietorship, notify the Department of Trade and Industry (DTI) for business name cancellation.
SEC: For corporations and partnerships, file for dissolution with the Securities and Exchange Commission (SEC).
SSS, PhilHealth, Pag-IBIG: Notify these agencies and ensure all contributions are up to date.
5. Local Government Unit (LGU) Compliance
Mayor’s Permit Cancellation: Visit the local City Hall or Municipal Office to cancel the Mayor’s Permit or Business Permit.
Barangay Clearance: Obtain a Barangay Clearance indicating no outstanding liabilities.
6. Social Security System (SSS)
File Notification: Submit a written notification to the SSS about the business closure.
Settle Obligations: Ensure all contributions are up to date and settle any outstanding obligations.
7. PhilHealth and Pag-IBIG Fund
Notify Agencies: Inform PhilHealth and the Pag-IBIG Fund of the business closure.
Settle Contributions: Ensure all contributions are up to date and settle any remaining obligations.
8. Employee Termination
Notify Employees: Provide employees with written notice of termination.
Severance Pay: Pay any severance or separation pay as required by law.
Certificate of Employment: Provide employees with a Certificate of Employment (COE).
9. Bank Accounts and Utilities
Close Bank Accounts: Close all business bank accounts.
Terminate Services: Cancel any utilities, leases, and service contracts.
10. Record Keeping
Document Retention: Keep records of all transactions, tax filings, and business activities for at least 10 years, as required by law.
Summary
Closing a business involves settling all financial obligations, notifying and obtaining clearances from various government agencies, and formally dissolving the business entity. It’s essential to follow the legal and administrative steps carefully to ensure a smooth and compliant closure process.
Important Notes
Consult Professionals: Engage with accountants, legal professionals, and tax advisors to ensure compliance with all legal requirements.
Timeline: The closure process can take several months, so plan accordingly.
Documentation: Keep copies of all documents and correspondence related to the closure process for future reference.
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