Closure of Business – What You Need

The COVID-19 Pandemic has affected the world’s economy. Unless and until a vaccine is found, countries will be shutting down and cloistering up every time there’s a spike in the number of infected. This places a huge burden on businesses that are forced to halt operations. So, it comes as no surprise when the news carries headlines of companies, big and small, closing.

If you’re one of those businesses severely affected by the community quarantine and looking at closure as a viable option, here are a few things you need to keep in mind.

Depending on the organization of your business (sole proprietorship, partnership or corporation), you need to complete the requirements for cessation of business in three (3) or four (4) key offices.

(1) LOCAL GOVERNMENT UNIT (LGU)

Barangay

Write a letter request for retirement or closure of business, addressed to the Barangay, indicating the following necessary information:

1. Date of application
2. Name of the applicant
3. Registered business name
4. Date of registration with the government (barangay)
5. Business permit number
6. Reason/s for closure of business
7. Proposed date of closure
8. A declaration that the business has no outstanding obligation or liability with the barangay

Attach valid / government-issued IDs of the owner/ all partners / Corporate President.

Once your letter-request is filed, the Barangay will then issue a Barangay Clearance and Barangay Certificate of Closure indicating the Date of Closure. These two (2) documents are required for closure of your business permit with the Mayor’s Office.

City / Municipality Mayor’s Office

Instead of a letter-request, you need to execute a notarized Affidavit of Closure (for sole proprietorships) or Notice of Dissolution (if partnership or corporation), indicating exact date of closure. The affidavit or notice must contain the same basic information as in the letter-request for the barangay.

For partnerships, the original Partnership Dissolution Agreement or Notice of Dissolution must be submitted. This document sets out how the property and obligations of the partnership will be divided among all the partners.

For corporations, the original Board Resolution or Secretary’s Certificate on the closure of business must be submitted.

Other documentary requirements:

1. BIR Form 2303 or Certificate of Registration
2. Latest ITR and Financial Statements (e.g. balance sheets, income statement, statement of cashflows, etc.) for the three (3) preceding years of the retirement date
3. Latest VAT and OPT Returns
4. Books of Accounts
5. If your business has multiple branches, proof of business tax payment from the LGUs governing the branches
6. Barangay Clearance
7. Barangay Certificate of Closure

Attach valid / government-issued IDs of the owner/ all partners / Corporate President.

Once you have submitted all the requirements and processed the forms, the City or Municipal Hall will issue a Certificate of Closure, indicating the date of closure.

(2) BUREAU OF INTERNAL REVENUE (BIR)

You saw above that one of the requirements to close a business at the LGU level is the BIR Form No. 2303 or Certificate of Registration. This document is proof that your business is registered with the BIR and that you are paying taxes. Note that, as a BIR-registered business, you have to comply with reportorial requirements and payment of taxes regularly. This is true for as long as your registration with BIR has not been cancelled. Thus, even if you have actually closed your business but left your BIR registration to hang without cancelling it, taxes may continue to accrue. Worse, you will also be imposed with penalties and interests.

Therefore, when you close your business, the best way to go about it is to tie all loose ends, including cancelling your BIR registration through a letter-request for retirement or closure of business addressed to the Revenue District Office (RDO) where your business is registered. In addition, your letter must include the following information:

1. Name of the applicant
2. Registered business name
3. Date of registration with the BIR
4. Certificate of Registration Number
5. Reasons for closure of business
6. Proposed date of closure
7. A declaration that the business has no outstanding obligation or liability with the BIR

Attach valid / government-issued IDs of the owner/ all partners / Corporate President, plus the following documents:

• BIR Form 2303 or Certificate of Registration
• Book of Accounts
• Death Certificate (in case of closure due to death of the sole proprietor); or Board Resolution / Notice of Dissolution (for corporations and partnerships)
• List of ending inventory of goods, supplies and other properties of the business (e.g. debit memos, delivery receipts, purchase orders, etc.)
• Inventory of unused sales invoices and official receipts
• Ask for Receipt Poster
• Latest ITR and Financial Statements for the three (3) preceding years of the retirement date
• Duly accomplished BIR Form 1905
• City / Municipal Hall Certificate of Closure Indicating Date of Closure
• Latest Authority to Print (ATP) issued and Form 0605 (Annual Registration)

Once you have completed the processing for cancellation of your BIR registration, the BIR will issue a BIR Tax Clearance Certificate, certifying that you already settled all existing liabilities and successfully closed your business at the BIR.

(3) DEPARTMENT OF TRADE AND INDUSTRY (DTI)

If you registered your business name with the DTI, you will also need to undergo cancellation of said registration by writing a letter for cancellation of business name, indicating the following information:

1. Date of application
2. Name of the owner / partner / corporate president, whichever is applicable
3. Registered business name
4. Date of registration of the business name
5. Certificate of Registration Number
6. Reason/s for the closure of business
7. Proposed date of closure

Attach valid / government-issued IDs of the owner/ all partners / Corporate President as well as the following documentary requirements:

• Affidavit of Cancellation of Registered Business Name
• Original copies of the business name (BN) Certificate of Registration
• Affidavit of Loss of BN Certificate, if applicable
• Certified true copy of the SEC certificate of dissolution of the corporation or partnership, if applicable

(4) SECURITIES AND EXCHANGE COMMISSION (SEC)

You will need to transact with this office if your business is organized and registered as a partnership or a corporation. The documents you need to secure a Certificate of Dissolution are:

1. Notarized Director’s Certificate, certifying the decision of the corporation to dissolve, in case of voluntary dissolution of a corporation and closure of business
2. Articles of Incorporation / Partnership (if the articles have been amended, then the Amended Articles should be submitted instead)
3. Audited Financial Statements (AFS)
4. BIR Tax Clearance Certificate
5. Notarized Secretary’s Certificate
6. Clearance from other government agencies (e.g. PEZA, BOI, BMBE, etc.), if applicable
7. Publisher’s Affidavit of the Publication of Notice of Dissolution

After successfully completing the above requirements, the SEC will then issue a Certificate of Dissolution.

OTHER MATTERS TO CONSIDER

If your business employs workers, you will need to comply with the notice requirement for closure of business under the Labor Code of the Philippines. First, you need to file an establishment closure report to the DOLE as well as notify your workers (who will be separated from service as a result of the closure) within thirty (30) days from intended date of closure. Then, you need to comply with the payment of separation pay in accordance with the Labor Code. Also, SSS, Philhealth and Pag-Ibig need to be notified so your business can be cleared of government regulatory obligations. Finally, if your business has a secondary license (e.g. real estate business, legitimate labor contractor, etc.), you will need to notify the concerned agency.