Many businesses throughout Kentucky and across the country have fallen on challenging times for a perfect storm of reasons including:
- The COVID-19 pandemic
- Interruptions in supply chains
- Labor shortages
- Street violence and property destruction
- Burnout and stress
- Natural catastrophes
- And others
The result is a domino effect of business challenges and closures. Are you concerned about your company’s future? Are you considering whether to shut down? How does a business responsibly close its doors?
Talk to an experienced business attorney to help you weigh the pros and cons of ceasing operations. Legal counsel can provide helpful, crucial information to the difficult decision-making process. If your decision is closure, the attorney can provide detailed guidance.
Nuts and bolts
Three issues will direct many of the steps to wind down a business. First, within what legal structure and business entity does the business operate? The process may vary if it is a sole proprietorship, partnership, franchise, LLC, corporation, nonprofit or another, less common entity. If you have business partners or co-owners, you cannot make decisions in a vacuum. Either you are a sole proprietor on your own or if others have interests, hopefully you can negotiate a positive resolution.
Second, what is the desired outcome? Depending on the state of the business, financial considerations and your personal and professional goals, options exist for you, potentially including:
- Selling the business, merging it with another or spinning off different divisions
- Negotiating a buyout with other partners or owners, especially in a family or closely held business
- Filing for bankruptcy
- Winding down, including selling off assets
- And others
Third, do you have a buy-sell agreement that dictates how the business closes?
Inform employees, pay creditors and retain tax records
Kentucky law requires that owners formally dissolve their legal entities when they will no longer conduct business through them. The Kentucky Secretary of State website provides detailed information about this, including guidance on specific steps.
Crucial steps to take:
- Notify people and partners: People include your employees, shareholders and customers. Partners include vendors, suppliers and investors. Do not overlook others who have relationships with your company such as landlords and contractors.
- Asset liquidation: Examine your inventory to determine what to sell and what to keep. Sell your inventory in a variety of ways, including sealed bids, retail sales, consignment, public auctions or the Internet.
- Resolve financial obligations with creditors: Quickly paying off creditors works to your advantage, preventing them from taking legal action. Negotiating with creditors may allow you to save money.
- Close customer accounts: Your customers helped build your business and were essential when in operation as well as post-closure. They may become future customers in your next venture.
- Meet tax obligations and retain tax records: File final returns and make payments to the IRS and applicable state and local tax authorities for income, property, employment and other taxes. Close any licenses or permits under your company’s name. Finally, keep your tax returns and unemployment records, lest you face an audit.
These are just some of the necessary tasks when closing a business. An attorney can help you make decisions and guide you every step of the way.