How to Terminate a Sole Proprietorship Business

Man hanging closed sign on door
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A sole proprietorship is a business entity owned only by a single individual with no partners. Unlike limited liability companies and corporations, the owner of a sole proprietorship is legally responsible for all decisions regarding the business operation, including the termination of business. Because a sole proprietor’s business is linked to his personal finances, it’s vital to ensure you follow proper business termination procedures to guard against the potential for personal legal and financial liability related to the business after closure.

Inform your employees, if you have them, of your intent to terminate your business. Businesses with 100 or employees that work an average of more than 20 hours per week are required under the Worker Adjustment and Retraining Notification Act to provide employees with a 60-day written notice prior to termination. You will be responsible for issuing final paychecks and filing final tax paperwork for employees.

Read More: Dissolution of Sole Proprietorship

Notify vendors and clients of your intent to terminate your business. Make arrangements to complete projects, fulfill contracts, and pay outstanding invoices, fees or payments. Notify each party in writing and include your final date of business operation, the final date of their services and where applicable, a copy of your contract or working agreement with that entity. Depending on the terms of your contract, you may ask vendors and clients to sign off on your termination agreement to avoid any potential legal issues, such as a claim of breach of contract.

Cancel your business license and deactivate your sales tax identification number, if applicable. You can do this through your state business-licensing department. You must pay outstanding sales taxes before your sales tax number can be deactivated. You can simultaneously apply for any refund you may be due for deposits made when you originally applied for your license and permits. If you have operated your business under a fictitious business name, sometimes referred to as a DBA, you may need to take certain steps such as filing a statement of abandonment with the state government entity that you filed the original DBA with.

Close your business bank accounts and credit cards. If you are renting space or equipment, make plans to terminate lease agreements and cancel utilities. Retain copies of these financial records for tax purposes.

File final tax paperwork. The complexity of this will depend on the size and scope of your sole proprietorship. You may report capital gains and losses as well as income earned in the course of selling property or merchandise used in the course of operating your business.


  • Carefully monitor your credit report after your business termination to make sure there are no loose financial ends you forgot to wind up. Forward business mail to your home address to ensure you are aware of any final invoices or other business expenses that have gone unnoticed.

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