You’ll have to “liquidate” the company’s assets if you decide to shut it down. If you want to put money in your own pocket, or more importantly to pay your creditors, you’ll need to liquidate your remaining company assets such as office gear and furniture into cash.
Not everyone has a clear idea of what to do with assets when closing a business, and we are assuming that you are on those. Do not worry! The Law Advisory is here to guide you rightly.
Identify Business Assets to Liquidate
Compile a list of your company’s assets, including any real estate, equipment, and accounts receivable that you anticipate to be paid in the near future. Among the items you should include are:
- Credit card machines, cash registers, and business equipment such as office furniture, art, and supplies
- Real estate
- Security deposits with taxing agencies, landlords, or utilities
- Prepaid insurance premiums that you can have refunded to you
For property, list the kind of property, its current condition, and who officially owns it—i.e., what money was used to acquire the property—your personal finances, a partner’s personal funds, and/or your company’s funds.
In addition to physical assets, your business might be able to sell intangible assets, such as intellectual property, such as:
- You may sell your commercial lease if the lease is at a below-market rate or at a great location (but you will probably require permission from your landlord)
- Your Contracts with your suppliers which are at below-market rates
- Your Contracts with your customers at profitable rates (permission may be required)
- Works that are in progress and have some value
- The Company name and the list of the customers (the goodwill your business has built up over the years)
- Intellectual property such as trademarks, patents, and copyrights
- Remaining accounts receivable.
Keeping track of how you attempted to sell these assets (keep copies of advertising or online postings), who bought them, and how much you got is important as you liquidate them. In the event that a creditor concerns your liquidation of assets or if you are forced to file for bankruptcy, keeping accurate records of your property and what happens to it can protect you. You’ll also need this information when you file your taxes.
Find Prospective Buyers for Your Business Assets
You’ll need to identify purchasers for a property that has been paid in full and has no collateral for another loan. To locate customers, tap into your network of colleagues in the business, such as suppliers or competitors. If you have intellectual property (patents, copyrights, and trademarks), and if you have any works or tasks in progress, your competitors might be interested in purchasing them.
With the use of websites like eBay and craigslist, you may be able to discover buyers for furniture, fixtures, and equipment. If you’re looking for a certain piece of equipment for your business, you may want to check out auction websites that specialize in that kind of item. If you have a lot of valuable assets, you may want to call a company broker or liquidator.
Do not expect that you will get more than 80% of the value of an asset. A tax benefit may be obtained by giving away assets that can’t be sold, such as old computers and office furniture, to a charitable organization.
Keep in mind that your accounts receivable will be worth much less after you have closed your business. It’s best to either try to collect the debt yourself or sell it to a debt buyer, or a factor, who will either purchase the accounts receivable or pay you a set amount of the debt upfront and the remainder when they collect it for a fee.
Pay Your Creditors and Loans to Business Owners
Prior to applying for bankruptcy relief, you’ll need to pay off any unpaid bills or debts to creditors or negotiate a lower settlement amount if available.
If obligations are not paid, do not distribute assets to the owners. If a corporation, LLC, or partnership cannot pay all of its obligations, state law prevents the distribution of the company’s assets to its owners. In addition to the fines, creditors who haven’t been paid may claim for the recovery of their assets from the owners. It is also possible to hold the company’s directors, executives, members, or partners personally accountable for any unlawful distributions of assets that they authorized.
The next step is to pay back any debts to the company owners and sign the documentation to prove it.
Having a contingency fund put aside in the event that a creditor brings a claim after the business is dissolved would allow you and the other owners to settle any obligations (or taxes) that arise after the dissolution. An unknown creditor is a creditor that doesn’t know when you shut down your company.
Don’t cheat your Creditors
Make every effort to secure a fair price for your company’s assets, not just for your own benefit but also to fulfill your legal obligation to your creditors to do so. If a corporation or limited liability company (LLC) has assets worth less than its obligations, the directors and officers of the firm have a responsibility to minimize damages to creditors. You commit fraud regardless of how your firm is constituted if you give away the assets or sell business assets for less than market value or put your own interests ahead of those of your creditors.
To put it another way, stop trying to make money by selling your assets at a loss or worse, by giving them away for free to relatives or friends.
Deal Separately with Leased and Secured Assets
Use your own money to pay off your debts and loans. It’s illegal to sell these assets without authorization from the creditor, and doing so might result in a criminal conviction. If you can’t pay back the loan, you’ll need to talk to the creditor about what you can do—whether you’ll give it to the creditor as it is or sell it after the creditor’s consent, and transfer the revenues to the creditor.
Furthermore, the rented property belongs to the landlord, not to you as a renter. If you don’t want to continue renting the property, you may either return it or “assign” the lease to someone else (Note that the lessor usually has the right to reject an assignment).
Secured creditors and lessors may be more willing than you think to accept a lower settlement.
Get Prepaid Insurance Premiums Refunded
Workers’ compensation and liability insurance premiums may be eligible for refunds, depending on the conditions of your policy. Workers’ compensation premiums are paid in advance by employers based on payroll predictions, so workers’ compensation carriers are used to modifying accounts each year to recover overpayment money, and you should be getting a refund without difficulty. Depending on the conditions of your policy, you may or may not obtain a refund.
Getting help in liquidating your Company’s Assets
There are some company owners who lack the time, expertise, or willingness to sell off their business assets. There are a few options open to you if you find yourself in this situation.
- Hiring a professional auctioneer and holding a public auction.
- Paying a fee to a business broker to off your assets.
- Assign your assets and liabilities to a liquidation firm.
- File bankruptcy: in this case, a bankruptcy trustee will be selling your assets and will pay off your creditors.
It’s important to follow the guidelines for the final distribution of funds to yourself and the other owners (if any) after you’ve sold your company’s assets and paid all of your creditors.
Winding up Your Accounts
Make sure to shut your company bank account and deactivate your business credit cards after everything is said and done. Because even the most well-organized person can’t keep track of everything, you may want to hold off on closing your bank account for many weeks or months.
Be careful to dissolve any LLCs, corporations, or partnerships under which your firm functioned. Depending on the state, you may have to divide the company’s assets first before filing the dissolution papers, or you may have to submit your last tax returns before filing the dissolution papers.
Be sure that everyone who may need to contact you has your information, even if your firm did not end as a success. A former client or employee, for example, may need a recommendation or a reference. Keep a list of all of your business associates, coworkers, clients, and vendors’ contact information. Maintaining a strong network is important because you never know when one of your connections could come in handy.
Before dispersing the company’s assets to beneficiaries, consult with a local business attorney if you have concerns about unidentified creditors.
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