There may be many reasons that you wish, or have, to close the doors of your business. You may find that an economic downturn has caused the business to lose profitability. Possibly you are in partnership with another individual who is retiring and you do not wish to bring in a new partner, or continue running the business on your own.
Another reason may be that you found a better opportunity and wish to close up shop on your current business entity so that you can focus on a new one. Whatever your reasons, there are certain procedures that must be taken into account when winding up a company. These depend on a wide array of variables, such as size and debt and need for legal counsel and accounting support to be done accurately to hedge against litigation or comply with law.
“Winding up” is the legal term used to refer to the procedure that must be followed to account for liquidating the business assets, payment to creditors and distribution of any assets to the remaining partners (if it is a partnership or joint business venture). If a partner has wrongfully caused the business to be dissolved, such as in cases of fraud, he or she cannot participate in winding up the company and it may be placed into an involuntary receivership that will manage its wind down.
Indiana, as well as most all other states, has statutes that will dictate the specific procedure for winding up a company. Often, any creditors are paid out of the business’ assets before the partners’ shares are distributed. But, as a general rule, the business activities must first cease or be determined to cease on a date-certain, so that proper inventory of what assets the company holds, and what debts it owes, can be determined, unless it is to be sold as going-concern or the subject of an asset purchase.
Partnership agreements, LLC/LLP operation agreements, or bylaws may dictate in what proportion or in what amounts the partners will receive the assets upon winding up a business. In the absence of an agreement, it is generally presumed all partners will share equally, with the exception of any partner who has caused the business to dissolve by his or her wrongdoing.
Dissolving a partnership, limited liability company, small business, sole proprietorship, or winding up a corporation, generally follow the same steps and procedures. It is important to understand that a corporation or business entity is an independent legal entity, separate and distinct from its shareholders, members, etc. (Mullis v. Brennan, 1999).
There are a number of requirements to winding down a business. If this is your intent, you should not try to do so without a lawyer’s aid. At a minimum, you should consult with a lawyer to develop a complete outline – a checklist that is compatible with the law. Without this, an incomplete or undone wind up may lead to personal liability and litigation for years to come.
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