Of all the legal challenges associated with owning and operating a small business, making the decision to dissolve is one of the most emotional. Dissolution of a business can happen for a variety of reasons, including insolvency, retirement, an owner whose passions have waned and a host of others. When the time comes to dissolve your business, there are certain protocols to follow to ensure that you aren’t faced with legal problems down the road. Attorney Jane W. Muir of Gersten & Muir, P.A. discusses how a business should approach the task of closing its doors.
Jane W. Muir
(Photo courtesy of Jane W. Muir)
Talk to an attorney
One of the most important steps in dissolving a business is to consult an attorney with experience with similar cases. Muir states, “If the business is insolvent, it is very important to consult an attorney. There are numerous issues that can cause owners problems long after the business has dissolved. For example, perhaps the company entered agreements that they cannot fulfill because of their dissolution. That puts them in breach of contract.” She also mentions the fact that creditors may still be able to claim unpaid debts. “These creditors might seek to recover funds from the ownership of the company. It is very important to consult an attorney to try to negotiate or resolve these debts and ensure that the ownership’s personal assets cannot be reached by creditors.”
Seek an unbiased opinion
Another contributor toward the dissolution of a business is the failure of owners to agree on key operation issues. Muir recommends that people in this situation find a mediator. “If the dissolution is caused by a difference of opinion between the owners, then a lawyer can assist the owners either as a mediator between them to work out a separation agreement, or on either side of the negotiation. Relationships between partners can be very personal, and it is helpful to have attorneys act as intermediaries so that disputes can be resolved professionally.”
Mind your customers
The process of dissolving a business can be frustrating, but if you’ve still got open contracts and obligations to customers, Muir recommends servicing these customers as normal. “It is important to take care of your clients or customers as much as you can when you are dissolving your company. Doing so will, at a minimum, preserve your reputation in the industry so you can reopen later when conditions improve. In addition, legally, if your company breaches a contract, it may be possible to hold you personally liable for your company’s non-performance.”
Dissolving a business is a difficult decision, but seeking legal advice can help you do so while remaining in compliance with contracts and customers alike, which may help you establish another business successfully later on.
This article was written by Alaina Brandenburger for Small Business Pulse