Reasons For Dissolving A Business

When a company is dissolved, it means that it has shut down legally with the government’s acknowledgment. The reasons that may lead to the dissolution of a business may vary. Here are some of the reasons as to why owners of a business may decide to dissolve the business;

Low Cash Flow

Businesses that do not have enough cash to sustain their operations may find themselves closing down.This is because companies that do not have funds may find themselves in debt. Being in too much debt with no ways to pay them is a clear indication that the business is not doing well. Therefore, the best alternative is to shut it down.

Negligent Accounting Practices

All businesses must keep track of their payments and expenses. There are accounting systems that keep track of the profit and losses for the financial statements. When the accounting practices are neglected, the business may find itself in trouble. This is because accounting errors may result in tremendous losses in the business and mismanagement of funds.

Product Liability

Sometimes, a company may produce defective products. We know that the cost of living has increased therefore production costs have gone up. A lot of resources are used and wasted if the products being produced end up being defective. Moreover, if the product arrived in the market, the company could be facing liability claims. The best move is dissolving the business if the owners do not have a strategic plan to deal with the situation.

Noncompliance With Mandates

All states require that businesses pay taxes, file their annual return or pay some fees to them. However, some businesses tend to avoid such obligations. They may evade tax or fail to pay legal fees, and when the state finds out, it could lead to involuntary dissolution. It is a crime not to give to the state what you owe them no matter the circumstances. Involuntary dissolution happens when the state forces the business to shut down.


A company could be struggling with insurmountable debts due to many reasons. When a company is in debt, it is an indication that it is not performing well. Borrowing to carry out day to day operations of the company is not a healthy business practice. Therefore, the owners of the company may decide to file for bankruptcy and dissolution of the business is the only way out for the businessmen to get help with their debts.…

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