KY CORPORATE DISSOLUTION ATTORNEYS
There are many reasons why businesses close. Some are voluntary, some are not; but either way, it’s important to tie things up as formally as possible. Simply shutting the doors on a brick and mortar store or failing to monitor a commercial website does not put an end to obligations. Letting a company lapse or allowing the state to dissolve it involuntarily can create a number of problems, such as penalties, fees, and personal liability for judgments against the business. Once the decision to end operations is approved by the proper parties (sole proprietor, partners, co-owners, shareholders, etc.), a certificate of dissolution should be filed.
If you’re faced with the need to discuss a closure plan for your business, the Lexington, Kentucky, lawyers at Bunch & Brock, PSC are here for you. We understand that whether contested or uncontested, compulsory or chosen, dissolution is a significant, meaningful undertaking. We work hard to develop the best plan for ensuring that you are protected from continuing liability while resolving all ongoing business issues with minimal personal impact under your unique circumstances. Put our experience to work for you. Contact us today by calling 859-759-4681 or by filling out our online form.
While general partnerships and sole proprietorships are not required to formally dissolve their business, filing dissolution papers is the best way to notify the government and creditors of the change. Limited liability corporations (LLC), S corporations, and C corporations should file Articles of Dissolution and three exact copies with the Kentucky Secretary of State (SOS). The completed papers can be mailed or delivered in person to the Capitol Building in Frankfort. If the corporation has not issued shares or commenced business, the proper form to use is Form IPD, Articles of Dissolution, for dissolution by incorporators or initial directors. If the board of directors or the shareholders are dissolving the corporation, use Form DIS, Articles of Dissolution. The SOS typically takes three days to completely process the filing. At that time, the business’s name is forfeited and can be taken by another entity.
Until the SOS is aware that a company is no longer operating, it is still liable for annual report filings, franchise tax payments and other obligations. If a corporation doesn’t file its annual report by the due date of June 30, the SOS will flag it as in “bad standing” and send a 60-day notice. If the report is not filed by the end of that 60 days, the SOS will administratively dissolve the corporation. This administrative dissolution does not end a company’s existence. It simply limits what a business can legally do to what is necessary to finish its dealings. While an administratively dissolved corporation can be reinstated, there are fees and time limitations involved, as well as personal liability risks. However, reinstatement may be preferable if owners of an administratively dissolved business wish to start a new business conducting largely the same activities.
Once dissolved, a business cannot carry on any activities except those appropriate to closing its affairs and liquidating its assets. Collecting assets, discharging liabilities, disposing of properties to third parties, and distributing property to business owners and assignees are typical actions. A dissolving business should also cancel all licenses and permits that are no longer needed, pay employees by their last day of work, file final employment tax returns, make final federal tax deposits of these employment taxes, and file an annual return for the year of dissolution. The IRS should be contacted about closing the Employer Identification Number (EIN), which serves as notification that that number is not planned for use in the future. All lenders and creditors should be notified, and all debts should be settled. Owners should also close all business bank accounts and cancel all business credit cards.
A business that is unable to pay its debts may want to consider filing for bankruptcy. Where there is high debt and low asset value, or if dissolution is the goal, then the provisions of Chapter 7 of the U.S. Bankruptcy Code is the best choice. Under this chapter, a company goes out of business and all its assets are liquidated (this differs from the discharge and exemptions available through a personal bankruptcy). Debts are paid off in a specific hierarchy, starting with secured creditors.
Bankruptcies by partnerships, corporations, and limited liability companies do not erase the personal liability of partners or owners because they are separate legal entities. For sole proprietorships, the rules are different and business debts are considered personal debts. Exemptions can protect business assets in a Chapter 7 bankruptcy and result in the business staying operational. These generalities have many nuances. The only way to be sure that you’re doing all you can for your struggling business interests is to speak with an experienced corporate bankruptcy lawyer.
For those who want more control over the process and a chance to restructure rather than close, a Chapter 11 bankruptcy can save the day. A reorganization plan under Chapter 11 offers an opportunity to adjust your business model, keep assets, and pay off debt in a way that keeps things running. The plan is drafted by a committee that represents creditor and stockholder interests. It must be approved by the bankruptcy court before it can be set into motion. Although it is not a quick process, it can work extremely well in the right set of circumstances. Often thought of as a tool for only large companies, Chapter 11 corporate bankruptcy has been successfully used by businesses of varying sizes and amounts of debt. In the event a company cannot meet the terms of the repayment plan, the bankruptcy converts to a Chapter 7 case and the company is dissolved.
Formal dissolution is expected of reputable businesses – and it can shield one from personal liability. With over 35 years of experience in our community, the Fayette County corporate dissolution lawyers at Bunch & Brock, PSC are committed to providing each of our clients with a high level of personal service. We understand that each ending will be as unique as the company it serves, and we have worked hard to protect the best interests of hundreds of business clients faced with the questions that concern you now. We will guide, inform, and educate you on the benefits and disadvantages of all of the available options so that you can be confident in the decisions that are made. We welcome the opportunity to help you and explain how to reduce potential post-dissolution liabilities. To schedule an initial consultation, please call 859-759-4681 or fill out our online form.