Business Life Cycle: Business Closures
The end of your business endeavor could be the start of a new opportunity in your life. If you feel like you’ve reached a point where you should be thinking about exiting or ending your business, we can help. There are many different ways that your business journey can come to a close. Let’s go over all the steps to business closures and how Wadkins & Wallace can make it a smooth and easy process for you.
First, let’s start off with some questions that you need to ask yourself before starting this process.
Am I Ready?
Are you prepared to close your business or transfer ownership? This is probably the most important question that you should address. Many successful business owners have a plan for what they want to do at the end of their journey with the business before they even are considering closing or selling. If you had not thought about it before, we can help you come up with a plan that meets your wishes for the business.
How Will This Affect My Personal Finances?
It all depends on how you set up your business and your business’s current financial situation. Let’s look over some possibilities together.
Let’s say that your business is not doing well financially. If you are a sole proprietor, then you have the option of dissolving both your personal and business debt with Chapter 7 bankruptcy. As a sole proprietor, you also have the option of filing Chapter 13 bankruptcy, which allows for the option of a repayment plan that can spread your repayment out over five years.
Limited liability companies and corporations are also able to use Chapter 7 bankruptcy (but not Chapter 13) as a means of closing the company. For LLCs and corporations, filing bankruptcy means that the company is able to liquidate and sell off its assets to pay its creditors.
How Do I Start?
Of course, every situation is different. That’s why we offer bankruptcy, business, and civil services. We know that your case is unique, but here are some general things that may apply to how your journey with your business will come to an end.
How to close a business with the legality in mind.
Dissolution:
The dissolution of a partnership is the “legal death” of the partnership. As dissolution occurs, the individuals are no longer legally partners, but the partnership remains until all of the business’s debts are settled. This happens when RUPA (or the Revised Uniform Partnership Act) requires the business to wind up and terminate.
“Winding up” is how people refer to the process of dissolving a business. There are many things that are done to “wind up” the company and get it ready for termination.
How it Works:
First, the losses are paid. They come from profit, then capital, then from the partners if that is necessary.
Then, the assets are divided up in this order.
Debts and Liabilities
The business must pay off any debts or liabilities that remain before they do anything else.Partners
The partners receive what they are entitled to in advances.Partners
The partners receive their capital investment or what is owed to them from capital.Partners
The partners receive whatever is left (if any) as a profit. This is divided in the same way that profits were divisible while the business was running.
Disassociation:
Disassociation is when one partner breaks away from the business and allows for his/her interest to be bought out. The partnership is still able to continue after the estranged partner disassociates.
This leads to:
the partner’s loss of management/business rights
termination of voting rights
a contract that allows for the estranged partner’s share to be bought out
the partner’s possibility of still having to carry out partnership obligations even after disassociation
Why Does it Happen?
There are many reasons that disassociation can occur. A partner could file for bankruptcy, die, or become incapacitated. It could be a voluntary decision; maybe there was a triggering event? The reasons are endless.
The Steps to Business Closures
Again, every situation is different. Your specific steps will vary based on which type of business entity you have, your financial situation, and other factors. However, here are some things you should know before you start the process of closing your business.
Tax Forms
Make sure that you fill out the correct tax forms and turn them in. C Corps requires a U.S. Corporate Income Tax Return form; S Corps require a U.S. Income Tax Return for an S Corporation form; all corporations need a Corporate Dissolution or Liquidation form; partnerships fill out the U.S. Return of Partnership Income form; sole proprietors use the Profit or Loss from Business form.
There may also be other tax forms that are required. Make sure that you fill them out accurately and timely.
Reversing the Process
If you read the first article of this “Business Life Cycle” series, you would recognize that there were many things you have to register for to validate the existence of your business. Things like the EIN need to be canceled. You can do this through the IRS.
Use a Business Lawyer
You need to make certain that everything you sign, fill out, and send will protect your best interests. Business closures can be very difficult. You need to have an attorney that knows business law. At Wadkins & Wallace, we have a very experienced and compassionate team that is ready to lead you through this process. Whether you need to file for bankruptcy or just need help with closing your business, we can help.
Contact us today at (706) 221-9451 or fill out this online form to get started. With the closing of one chapter, another opens. Let us help you find your new journey.
