The Termination of a Sole Proprietorship

Starting and operating a small business can provide a steady stream of income, but many small business owners end up closing or selling their businesses. A sole proprietorship is a business that has a single owner who is personally liable for the business' debts. Owners of sole proprietorships have complete control over their companies, giving them the freedom to terminate their businesses at any time and for any reason.

Closing a business is a multipart process that can take days or weeks, depending on the nature of the business. According to the U.S. Small Business Administration, a sole proprietorship might not be required to formally dissolve, but the government and creditors should be notified of the change. The owner should cancel licenses and permits associated with the company that are no longer necessary, give final paychecks to employees and keep business records to file taxes. For certain businesses, such as one where the owner provides a service to the public but has physical goods, assets or employees, the owner simply could terminate the business by ceasing to offer those services.

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Completely shutting down a company is one way to exit a sole proprietorship, but owners with successful companies might prefer to sell their businesses rather than terminate them outright. The Small Business Administration says that selling a business requires the buyer and seller to prepare a sales agreement that defines everything that the buyer intends to purchase, such as the business' assets, customer lists, intellectual property and goodwill.

Owners of businesses such as retail stores that have inventory and other valuable physical items might not wish to keep those items after closing a business. Liquidation is the process of selling all the physical assets a business owns, which often accompanies the termination of a sole proprietorship. The Small Business Administration says that property sold during liquidation typically sells for around 20 percent less than it does at retail and that qualified appraisers can help owners estimate the sales value of business assets.

If a sole proprietorship never achieves profitability, it could accumulate significant amounts of debt. The owner is responsible for paying back creditors, even after the business is terminated. In situations where the owner has a large amount of debt, the termination of the company might involve bankruptcy. During bankruptcy, the owner might have to liquidate the assets of the business and give the proceeds to his creditors to pay back as much of his debt as possible.