Mark Pestronk
Q: I think my agency has reached the bottom of the barrel financially. With no cash left after spending two PPP loans, no employees who haven't been laid off and no commissions coming in for several months, I am thinking of just getting out of the business. A year ago, in your May 11, 2020 column, "Giving notice when closing your business," you covered the steps to closing the business. However, I am worried about personal liability after I close. How can I be sure I won't have personal liability?
A: Let me start out by not answering your question just yet. Before you decide to close, consider selling your business to another agency. Even if you have no immediate prospect of income, your agency's name and client list may be valuable assets for which another agency might pay you a percentage of future business.
If you are nevertheless determined just to shut down, here's what to keep in mind:
First, many owners believe they can get rid of their company's debts by dissolving their corporation or limited liability company (LLC), i.e., to file a paper with the secretary of state that terminates the existence of the corporation or LLC.
Not only does dissolution not affect your existing liabilities, but it also may make it easier for creditors to sue you personally. Therefore, keep the corporation in existence until all claims are settled and all taxes paid. Keep your bank accounts open and fund them as needed to pay any of your company's continuing obligations.
Second, if you have an ARC appointment, make sure you continue to file ARC sales reports as long as necessary to pay for all tickets. If you stop filing before you report all tickets sold, you may be sued by ARC personally for ticketing fraud.
Third, if you had any employees before you closed, be sure to remit the federal and state withholding taxes for wages that you paid and to file the required quarterly employer returns. Otherwise, the IRS will hold you personally liable for unpaid withholding taxes.
Fourth, if you operate as a corporation, be sure to continue to observe your state's required corporate formalities, such as filing annual report and maintaining corporate records. Otherwise, creditors could try to get a court to disregard your corporation and hold you personally liable for the corporation's debts.
Finally, if there are any company liabilities that are personally guaranteed, such as an office lease or company credit card, try to negotiate a settlement by pleading poverty with the creditors, who might otherwise sue you personally if they are convinced that you have enough money to pay the debts.
You probably should not file for bankruptcy if you have a small number of such debts, but an experienced bankruptcy lawyer may be needed to deal with creditors for personally guaranteed debts.
If you take my advice to consider selling your business, don't dissolve the company until you have taken care of all its debts and obligations.