Introduction

Proprietorship firms are owned by an individual. The closing process of a Proprietorship firm is similar to registration, though less cumbersome. If the process of closing is not carried out properly, an action may be taken under the law from employees. If a contract is not terminated from vendors and customers, before closing the Proprietorship firm, it may invite litigation.

One can seek the help of any agency or expert services to get details of all the steps needed in closing business or can seek help from someone who has gone through this process.

The process to Close Proprietorship Firm

The first step before closing the firm or business is to inform employees for them to seek a job elsewhere.  Mandatory 60 days’ notice to employees is needed before closing the business, else an action may be taken under the law.[i]

Financial settlement of employees and completion of other formalities as part of the closure is needed. Supplier, vendors, and clients should be informed giving them sufficient time and informing them on timelines of completing a remaining project or contractual obligation. This will help in the settlement of accounts and balance sheets. This will also include making a termination agreement with the vendor specifying all the details including the last day of business. This will avoid future litigation.

The closure process includes cancelling business registration to avoid any false allegation and to avoid fraud by someone making invoices against business and using closed business registration or identification number. If one has GST registration then he/she should visit the official website and start the cancellation process. Cancellation of other licenses viz. Shop Act to avoid paying the future payment of license fee. Similarly, if the business is in a rental place then cancellation of a rental agreement is needed to avoid future rent payment. Electricity and water connection cancellation too is needed to avoid related chargebacks.

If the business is at loss, then creditors may stake a claim against one’s personal assets to recover their money. One needs to explore the option of filing for insolvency, if not in a position to pay liability, under the provisions of the Insolvency Act. If done, the creditors will be redirected to the court, which will take a call on debt settlement.[ii]

Plant and machinery which is not needed should be sold and receipt of payment should be preserved for taxes. Closure of the business’s current bank account, cancellation of the chequebook, debit, or credit card is needed to avoid misuse. This can be done by visiting the bank and filling needed forms. Finally, compliance with income tax and GST is needed to pay the final taxes applicable.

Conclusion

 Cancellation of all licenses and business registration should be done to avoid any future liability when closing a Proprietorship firm. Terminating agreements with vendors and customers too are needed to avoid any future litigation.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.