Ending Your Business
By Lane V. Erickson, Idaho Business Law Attorney
Creating a business where several people are involved is a lot like getting married. When it happens, everyone involved is filled with love, hope, and dreams. In fact, everything looks rosy. However, as with many marriages, businesses don’t often go exactly how the owners of the business thought it would. It doesn’t really matter whether a business comes to an end because of a disagreement between the owners, or because one of the owners passed away, or simply because one of the owners decides they don’t want to be involved in the business any longer. Regardless of the reason, it’s possible that there may be several steps that need to be accomplished in order for the business to actually come to an end.
At the Racine Law Office, our premiere team of Idaho business attorneys have been helping clients for more than 70 years as they create and operate their businesses. We also help when a business comes to and end and needs to be dissolved. Our team includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley each of whom have decades of experience, that have provided them with the skills necessary for them to help each client meet all of their business needs including dissolving a business.
The purpose of this article is to provide you with some basic information about how you can end your business. This article describes some of the things that you need to be concerned about and the steps that need to be taken in order for your business to come to an end.How to End Your Business
The place to start is to talk about how to end your business. The “how” of ending your business is going to be controlled by several factors including the applicable law. Many of these factors include whether or not there are business assets that still exist, whether or not there are creditors that need to be paid off, and understanding the capital accounts and contributions that had been made by the owners of the business while it operated. There also needs to be a clear understanding of who the actual owners of the business are. It’s impossible to fully discuss each of these factors. For this reason we will only talk about a few of them.
A business can come to an end in several different ways. Most often, a business simply ceases to operate. This means they shut their doors, they stop answering their phone calls, and they don’t operate or carry out any business activities. If the business has neither creditors nor assets then this is a fine way to go. In fact, when this is the case, the business owners can simply stop doing anything associated with the business and walk away.
In Idaho a business is required to file an annual report. If a business has ceased to operate, the owners can ignore the annual report. When the annual report is not filed, the Idaho Secretary of State’s office enters a notation in their records showing that the business has been administratively dissolved which means it is no longer operating and it is no longer recognized as an actual business.
However, if there are creditors, or there are assets that are still in the business, or there are other unmet or unfinished obligations that still need to be concluded, it may be wise for the business owners to file a certificate of dissolution with the Idaho Secretary of State’s office rather than allowing an administrative dissolution. This document provides a specific date as to when the business ceased to operate.
The reason this is important is because if any of the owners or agents of the business then go out and purportedly enter into business transactions or borrow money or do any other items in the name of the business, the debts or liabilities associated with those actions will fall on the shoulders of the individual who did them, rather than on the business itself. In other words, the certificate of dissolution provides notice to the entire world that the business has ceased to operate.Paying Off Creditors
The next issue that needs to be discussed is dealing with creditors of the business. If the business ceases to operate, this does not mean that the business can simply walk away from the debts associated with its operation. Rather, if the business has any assets at all when it ceases to operate, those assets have to be liquidated and the money used to pay the legitimate creditors of the business.
If the business has been operated correctly, it will have a list of all of its creditors. As a result, the owners of the business should have a good idea of the number and types of creditors that need to be paid.
So long as a business has adequate assets, all of the creditors must be paid off. When a business does not have adequate assets to cover all creditors, then the business is required to pay creditors in a specific order. First, creditors who have a security interest in assets belonging to the business must be paid before any other creditors. Once secured creditors are paid, then the business is required to pay all unsecured creditors.Distributing Business Assets to the Owners
Although it doesn’t always happen, in an ideal world when a business ceases to operate there are adequate assets to pay all creditors and also leave some assets or money that will be distributed to the owners. When this occurs, capital accounts or contributions are paid first based on the accounting provided by the business. In other words, if while the business was operating, it needed more money, the owners of the business may have provided some of their own personal money to the business to help it operate. When this occurs, the owner’s capital or contribution should be recorded in an accounting to show how much they have contributed to the business. At dissolution, after the payment of all creditors, capital contributions are then paid next out of the assets of the business.
Once the capital contributions are distributed, if there is any remaining assets, these are distributed to the owners. This distribution is usually based upon the percentage of ownership each owner has in the business. In other words, if there are three owners and they each own a one-third interest, they would each be entitled to receive a 1/3 distribution of the remaining assets of the business. However, it’s possible that distributions are controlled either by the bylaws or by the operating agreement of the business.
How a business ends and what occurs after it ceases to operate are issues that we have dealt with numerous times. we have experienced. Only and helping individuals create and operate a business but also in bringing that business to an end. We are confident that we can help you too!Enlist an Idaho Estate Planning Attorney to Help You
Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at firstname.lastname@example.org or stop by our office at 201 East Center Street, Pocatello, Pocatello 83201. We will answer your questions and help you solve your Idaho business law needs.