Closing a business in the Philippines—often referred to as "shortening of corporate term" or "dissolution"—is a rigorous process that requires clearing liabilities with several government agencies. In the Philippines, a business is not considered legally "dead" until it has received a formal Tax Clearance from the Bureau of Internal Revenue (BIR).

Failure to properly close a business can lead to the continuous accumulation of "open cases," penalties, and compounded interest for unfiled tax returns, even if the business is no longer operational.

Phase 1: Internal Dissolution and Employee Separation

Before approaching the government, the entity must formalize its intent to cease operations internally.

1. Board Resolution or Partnership Dissolution

Corporations: Requires a Board Resolution followed by a 2/3 vote of the outstanding capital stock. The Secretary’s Certificate must state the reason for dissolution.
Sole Proprietorships: The owner must execute an Affidavit of Cessation of Business.

2. Employee Termination and Labor Compliance

Under the Labor Code of the Philippines, the employer must:

Serve a written notice to the employees and the Department of Labor and Employment (DOLE) at least 30 days before the intended date of termination.
Pay separation pay (usually 1/2 month to 1 month pay per year of service, depending on the cause of closure).
Issue Certificates of Employment and BIR Form 2316 to all displaced staff.

Phase 2: Local Government Unit (LGU) Level

You must clear your obligations at the Barangay and City/Municipal Hall where the business is registered.

1. Barangay Clearance

Apply for a Barangay Certificate of Cessation of Business. This is usually the simplest step but is required for the City Hall application.

2. City/Municipal Mayor’s Permit

You must surrender your original Mayor’s Permit and Business Plates to the Business Permits and Licensing Office (BPLO).

Assessment: The LGU will assess if there are any outstanding local business taxes (LBT).
Requirement: You must show that all taxes for the current year have been paid up to the date of closure.
Outcome: A Certificate of No Outstanding Liability or a formal retirement of business.

Phase 3: National Government Agencies (BIR and SEC/DTI)

This is the most critical and time-consuming phase of the process.

1. Bureau of Internal Revenue (BIR)

The goal is to obtain a Tax Clearance.

Notice of Closure: File BIR Form 1905 (Application for Registration Information Update) at the Revenue District Office (RDO) where the business is registered.
Surrender of Documents: You must surrender the original Certificate of Registration (COR), unused Official Receipts (ORs) or Sales Invoices, and the "Ask for Receipt" signage.
Audit and Open Cases: The BIR will check for "Open Cases" (unfiled returns). You must settle all unpaid taxes and compromise penalties. The BIR will conduct a final audit of the business's books for the last three years (or since the last audit).
Inventory List: Submit a list of remaining inventory and assets, as their disposal may be subject to Value Added Tax (VAT).

2. Securities and Exchange Commission (SEC) or DTI

Corporations/Partnerships: File the Articles of Dissolution with the SEC. The SEC will require the Tax Clearance from the BIR before issuing the Certificate of Dissolution.
Sole Proprietorships: File a cancellation of the Business Name with the Department of Trade and Industry (DTI).

Phase 4: Social Agencies (SSS, PhilHealth, Pag-IBIG)

Employers must inform the social agencies to stop the billing of monthly contributions and to ensure employees can no longer claim benefits under that specific employer ID.

SSS: Submit Form R-3 (Contribution Collection List) and Form R-8 (Employer Data Change Request) indicating "Cessation of Operations."
PhilHealth: Submit Form ER2 (Report of Employee-Members) and a formal letter of cessation.
Pag-IBIG: Submit the Employer's Change of Information Form (ECIF).

Summary of Essential Documents

Agency	Primary Document Needed	Outcome
LGU	Affidavit of Cessation / Board Reso	Certification of Retirement
BIR	Form 1905, Unused Receipts, Books	Tax Clearance
SEC	Articles of Dissolution	Certificate of Dissolution
DTI	Affidavit of Cancellation	Cancellation Certificate
SSS/PH/PI	Employer Change Request Forms	Deactivated Status

Important Considerations

Timeline: Closing a business in the Philippines typically takes 6 months to 2 years, largely due to the BIR audit process.
Preservation of Records: Under the National Internal Revenue Code (NIRC), even after closure, business books and records must be preserved for 10 years.
The "De Facto" Trap: Simply stopping operations without filing these papers does not stop your tax obligations. The BIR will continue to expect monthly and quarterly filings, leading to massive penalties over time.