Closing a Business in Pennsylvania — Dissolution & Wind-Down

Closing a Business in Pennsylvania

Starting a business gets all the attention. Closing one properly gets almost none — which is why so many business owners end up with lingering tax liabilities, personal exposure, and zombie entities on the state's records years after they thought the business was done.

Whether you're winding down voluntarily, dissolving after a partner dispute, or shutting down because the economics no longer work, Pennsylvania law requires specific steps to properly terminate a business entity. Skipping these steps doesn't make the obligations go away — it just means they follow you.

Voluntary Dissolution — The Planned Wind-Down

Corporations (15 Pa.C.S. § 1975 et seq.). A Pennsylvania corporation dissolves by board resolution followed by shareholder approval (majority vote unless the bylaws require more). After the vote, the corporation files a Certificate of Dissolution with the Department of State. But filing that certificate is not the end — it's the beginning of the wind-down. The corporation continues to exist for purposes of winding up its affairs: collecting receivables, paying debts, distributing remaining assets to shareholders, and filing final tax returns.

LLCs (15 Pa.C.S. § 8871 et seq.). An LLC dissolves according to the terms of its operating agreement. If the agreement is silent, dissolution requires the consent of all members (or a majority if the agreement says so). The LLC files a Certificate of Dissolution with the Department of State and then winds up — paying debts, distributing assets, and filing final returns. The operating agreement should specify the order of distributions; if it doesn't, creditors are paid first, then members receive their capital contributions, then remaining assets are distributed pro rata.

Partnerships. General partnerships dissolve when any partner gives notice of withdrawal, unless the partnership agreement provides otherwise. Limited partnerships (15 Pa.C.S. § 8621 et seq.) dissolve according to their partnership agreement. In either case, wind-up follows: debts to outside creditors first, then debts to partners, then return of capital, then distribution of remaining assets.

The Wind-Down Checklist

Tax clearance. File final federal, state, and local tax returns. Pennsylvania requires a final corporate tax report (RCT-101) for corporations and a final PA-20S/PA-65 for pass-through entities. Request a tax clearance certificate from the Department of Revenue — you may need this before the Department of State will accept your dissolution filing.

Cancel registrations and licenses. Cancel your EIN with the IRS (Letter 147C), close your Pennsylvania sales tax account, cancel your local business privilege tax registration, and surrender any professional or occupational licenses.

Notify creditors. Send written notice to all known creditors. Pennsylvania doesn't have a statutory creditor notification requirement for voluntary dissolutions the way probate does for estates, but notifying creditors is both good practice and good protection — it starts the clock running on any claims under the applicable statute of limitations.

Resolve contracts. Review all leases, service agreements, vendor contracts, and employment agreements. Some contracts have termination provisions; others may require negotiated buyouts or assignment. Don't just stop paying — that creates breach of contract liability that survives dissolution.

Insurance. Maintain general liability and professional liability (if applicable) coverage through the wind-down period and consider purchasing a "tail" policy for claims-made coverage. Claims arising from pre-dissolution activities can surface after the business closes.

Records retention. Keep corporate records, tax returns, financial statements, and key contracts for at least seven years after dissolution. Pennsylvania's statute of limitations for most contract and fraud claims is four to six years, and the IRS can audit returns for up to six years in some circumstances.

Involuntary Dissolution and Administrative Dissolution

If you stop filing annual reports or paying franchise taxes, the Pennsylvania Department of State will eventually administratively dissolve your entity. This is not a clean dissolution — it means the entity is terminated on the state's records, but you haven't wound up properly. You're still liable for unpaid taxes, the entity's obligations don't go away, and the corporate veil protections may be weaker.

An administratively dissolved corporation or LLC can be reinstated by filing back reports and paying back fees, but this gets expensive quickly — especially if years have passed.

A court can also order judicial dissolution of a corporation or LLC on petition by a member, shareholder, or creditor. Common grounds include deadlock (directors or members can't agree on anything), oppression of minority shareholders, or waste of corporate assets.