If your business is in the process of folding, I may be able to help you pull it back from the brink or make the dissolution process go as smoothly as possible. When it comes to small businesses, one of the most common concerns is who will be responsible if the business dissolves. There are many unexpected problems that can occur during the life of a small business, regardless of its tax filing status, and each one can lead to questions of responsibility and management. The degree of liability you face depends largely on your status as a corporation, LLC or sole proprietorship.
When a Business Folds
If you own a business with a friend and your company has leased a building to operate from, numerous questions arise if your business entity undergoes major changes, such as a loss of revenue. What happens to the lease obligation depends on how it was written and how you and your business partner created your agreement. If your business is a corporation or an LLC, you and your partner will be largely shielded from liability for the lease in most cases. If the owners provided a personal guarantee on the lease, both your business and its owners are liable according to the lease terms. Partnerships and sole proprietorships do not offer the same protection from liability, so you and your partner are liable regardless of whether the owners signed personal obligations. In a different scenario, such as one in which your partner decides he wants to leave and dissolve the business, but you want to continue operating the business, the liability changes. Whether you are allowed to stay in the leased property or leave and sign a lease at a new location depends entirely on whether you are willing or able to buy out your partner’s interests in the business. If you are, you can continue operating the business as normal. If not, your landlord may allow a substitution of the new company or sole proprietorship in place of your former business. If you signed a personal guarantee and your landlord refuses to allow residence by any entity other than your corporation as it is listed on the lease, he may become a creditor. In this case, you may want to consult with me for guidance on how to proceed. If rent is paid on time, landlords generally have a difficult time removing an owner or guarantor from a property within the timeframe of the original lease. Incorporation lawyers such as myself may provide assistance when managing lease agreements.
Financial Obligations After Dissolution
One of the most common reasons to file for status as a corporation or an LLC is the ability to remain shielded from personal liability in the event that your business dissolves. When your partnership or sole proprietorship folds, you may be exposed to personal liability for remaining financial obligations, such as rent and business debt. When a corporation or LLC folds, you are required only to pay on assets in your business bank accounts and other financial assets directly related to your business. Smaller businesses may mingle personal and business assets, which can expose your personal finances to liability. To avoid this, contact my office so that I can help you ensure that your personal and business finances are separate. It is common for small businesses to use equipment such as cars, computers and printers for both business and personal purposes. While this may seem like the financially sound thing to do, it means that your personal means of transportation and digital access could be considered part of your business and subject to confiscation. I can help you create the best type of business entity to ensure that your personal assets are protected from confiscation in the event that your business dissolves and that you are not held liable for any of your business debts and other financial obligations. Having everything established in writing can prevent conflict between your and your business partner by ensuring that everyone understands the terms of your business agreement upfront. If you are considering dissolving a corporation, you may benefit from seeking assistance with contract negotiation to ensure that you are adequately protected.
Contact Corporation Lawyer Garrett Sutton for Assistance
Call the Sutton Law Center at (775) 824-0300 to work with corporation lawyer Garrett Sutton who can provide you with help dissolving your corporation the right way.