Considerations When Closing Up or Shutting Your Business

The closing or ending of a business can be good or bad—much of it depends on whether you’re being forced out of business, or whether you’re voluntarily ending the business so you can retire, step back, or start other ventures. Either way, ending a business incorrectly can cause as many problems as starting it incorrectly can, and far too many people close up shop without getting legal advice to make sure they’re doing it the right way.

Here are some less obvious things that a business owner should do or consider when it comes to ending or closing a business.

Paying Employees

Make sure that you pay your employees any back owed wages. Under the Fair Labor Standards Act (FLSA), even if the business is gone, a worker who hasn’t been paid can sue the business owners, individually, for unpaid wages. This is exactly what is happening with a restaurant in Fort Lauderdale, where a lawsuit alleges that its workers went unpaid as the business struggled and eventually failed.

If need be, you may want to consider keeping a few crucial employees onboard, perhaps at some additional pay rate, to help you with the duties of wrapping up the business.

Paying off Creditors and Debts

You certainly want to pay off your debts. But there’s also the chance that you may not have the money or assets to pay off all of your debts. You’ll want to start with any debts that involve personal liability — such as those where you may have a personal guarantee. You also may want to prioritize the larger debts, such as commercial leases, and see if negotiation can lower some of those expenses.

If you have funds from the liquidation of assets or property, make sure that you keep those funds in a separate account, intended to pay off creditors, so you don’t use that money for other things. Make a list of creditors, so you know if you are short of funds, and so that each of your creditors knows that they’re not the only ones in line for payment from you.

Remember as well that if you do make money from the sale of assets you’ll need to file an IRS form 797 that deals with selling and acquisition of business assets.

Paying Other Owners or Partners

If you have investors, partners, managers, or shareholders that are entitled to any remaining funds, make sure you follow your investor agreement, partnership agreement, or other government documents, that (hopefully, if they were drafted correctly) say who gets what from remaining funds.

Formal Dissolution

It may seem like filing a formal dissolution of the company or the LLC or partnership is just a corporate formality. But having that on record can tell creditors that you’re seriously going out of business—and may encourage them to come to the bargaining table, when it comes to trying to resolve corporate debts.

The West Palm Beach commercial litigation attorneys at Pike & Lustig can help you, whether you’re starting or closing, your business.

Source:

irs.gov/forms-pubs/about-form-4797