When you decide to dissolve a business, it is imperative to do it correctly under the law in order to avoid incurring personal liability. You cannot simply hang a “closed for business” sign and sell your inventory. As the owner of a business, you have the legal obligation to pay the debts of the entity before distributing the company’s assets. A business owner who fails to follow the proper dissolution procedures under the law may end up being personally liable for the business debts.
Every state has its own business code setting forth how companies can be formed and operated within its borders. Each type of entity has specific procedures that must be followed when winding up its affairs and closing its doors. An owner that closely follows these procedures will be protected from incurring personal liability and ensure that all obligations of the entity end on the day the business officially closes.
Most state laws require a majority vote by the owners to shut down the entity. When a vote to dissolve the entity is taken, it should be properly documented and recorded in the company’s books. The business owners may also choose to appoint an individual to manage paying creditors, selling assets and closing accounts.
Dissolution laws usually allow the entity to publish notice in a local newspaper to set a deadline for claims to be submitted. When proper notification is provided, some states bar creditors from filing lawsuits against the business after time has passed. Other states provide that the notice serves to limit claims to any remaining assets that were distributed to the owners.
Once all of the debts and obligations of the dissolved business have been satisfied, any remaining amounts can be distributed to the owners. The laws also typically require the company to set aside an adequate amount of money to pay any unresolved debts.
Finally, the dissolving business must file the appropriate paperwork with the state. These documents are commonly referred to as the article of dissolution or certificate of dissolution. These records establish as a matter of public record the date that the entity closed.
If you need assistance with properly dissolving a business and protecting the owners from personal liability, contact the legal team at The Swenson Law Firm to schedule an initial consultation.