The duo have released a joint statement confirming City of London Police and Her Majesty's Revenue and Customs are not to proceed with any action.
Sullivan, who took charge of Blues along with chairman David Gold 15 years ago, and Brady have always been confident they would not face charges and now want to look to the future with the Premier League newcomers.
A statement issued on behalf of Sullivan and Brady reads: "David Sullivan and Karren Brady are pleased to confirm that following a two-year investigation by City of London Police and Her Majesty's Revenue and Customs into Birmingham City Football Club, they have today received written confirmation that a decision has been taken that no proceedings will be instituted.
"Whilst always confident of this outcome, the period of the investigation was understandably a stressful time and David and Karren are now happy to put the matter behind them and look forward to the future."
Gold said: "I am delighted to hear the news today about David and Karren. It's something I have been expecting for a long time.
"It didn't occur to me for one second that they were a part of any wrongdoing having known their character from working with them for over 20 years.
"They are two of the most upstanding people I have ever worked with and I don't want anyone to ever believe that they have been let off anything. They have never done anything wrong and this is the correct decision."
One of Sullivan's first tasks now may be to sanction Birmingham manager Alex McLeish's wish to sign a couple of players on loan to ease a defensive crisis with the new season only eight days away.
McLeish has Roger Johnson, signed from Cardiff for £5million, as his only fit central defender as Blues gear up for the opener at champions Manchester United on August 15 and he is lacking in sharpness after hip surgery at the end of last season.
Other summer signings Scott Dann (groin) and Giovanny Espinoza (thigh strain) are sidelined in addition to long-term injury victim Liam Ridgewell, who is recovering from a broken leg, and Martin Taylor (ankle ligaments).
The position is just as desperate at left-back with David Murphy (dislocated knee cap) written off for the foreseeable future with Franck Queudrue forced to play while still not fully fit.
And hopes of signing Arsenal's Armand Traore on loan in time for the visit to Old Trafford have been thwarted by Arsene Wenger, who will not decide on the future of the player until the end of the August transfer window.
McLeish said: "It is a bit rocky at the moment. I don't know what my defence is going to be at this moment for the first game.
"We have some problems, a little bit of misfortune in the centre of defence in that with Scott Dann and Roger Johnson, I've not been able to work with them at all which has disrupted the game plan.
"Martin Taylor has gone over on his ankle and will be out for a considerable time as will Liam Ridgewell. Giovanny Espinoza has come in and he is a little bit off the pace and he picked up a little strain in his thigh so he is not ready either.
"So we've got virtually all the centre-halves down. The only one playing is Roger Johnson and I still think he has got to find a bit of sharpness as well.
"He had a tidy-up operation at the end of last season on his hip and in ideal circumstances I would have liked to have had more conditioning work for him."
McLeish added: "I am trying to bring in a couple of loan players if I can. I am making some headway in the left-back position but not the centre-half position yet."
McLeish is still interested in signing Sporting Gijon playmaker
Michel but does not know if he will have the financial backing from co-owners David Gold and David Sullivan.
He said: "As regards Michel, we are not miles down the road with it. The clubs haven't started talking yet. I have just said I am interested in him.
"Whether the club back me to buy him is another matter. We have to still go over that particular bridge."