When you decide to close your business, it is not as easy as simply pinning a “Closed for Business” sign on the front door. From settling debts to distributing assets, there are many things you will need to do before moving on. Royal Business Solutions understands how turbulent this time can be for you. Selling business assets, in particular, can seem like a way to make back some of the losses you may have had. However, you should know more about distributing assets before you do so. Let’s take a look below.
Before Issuing Distributions
It is important that you take the time to address any of your business incurred liabilities before you distribute any remaining assets.
- Liquidate physical assets. It is very important for you to sell off any physical assets your business as accrued. Referred to as “liquidating”, this act turns your property into much needed cash that can help you pay off all of the items listed below. If you are lucky, you may even get to pocket some of the proceeds should the value go beyond your total balance owed.
- Pay your bills. Request all outstanding invoices from any creditors. You will need to pay off any bills owed to these creditors prior to divvying up the remainder of your business assets. In fact, state laws typically prevent corporations, limited liability companies (LLCs), and partnerships from distributing assets to owners if debts are still unresolved and owed.
- Pay your employees. You must pay your employees for the time they have worked. Some states may even require you pay for any unused leave they have accrued during their time working for your business. If you had hired independent contractors instead of or in addition to hiring regular employees, you will need to pay them as well.
- Pay for services, cancel leases, and settle contracts. If you rent an office, have outstanding contracts, or utilize any other services, like electric or cable, you will need to take care of them before distributing the remaining assets to owners. Any deficiencies or penalties incurred by your company’s closure will also need to be paid.
- Pay your final taxes. You need to make sure you pay all of your taxes before you distribute assets to owners. This includes, but is not limited to, sales, payroll, income and unemployment taxes that you may owe.
For many, addressing liabilities may deplete you of excess proceeds and, therefore, prevent you from having to worry about asset distributions. However, should you be able to pay for all of the items listed above and still have leftover money or assets, you are in luck. How you distribute your assets depends on the type of business you are closing.
- Sole-Proprietors: If you are the sole-proprietor of your business, the only person you need to distribute remaining money or assets to is yourself. As long as your debts are taken care of, the remainder is yours to keep.
- Partnerships and LLCs: Partners and members typically have their own capital account. These accounts were opened with the initial investment balance each made to the business. As the business profited, these accounts grew. As it lost or when distributions were made, the accounts decreased. In the event of a closure, it is likely that the investment thresholds in each of these accounts is not able to be met. In this case, the remaining assets would be divvied up in proportion to each investor’s percentage. (For example, if Partner A invested 80% of the startup cost and Partner B invested 20%, the partners would receive that same percentage of the remaining asset value.)
- Corporations: All remaining assets should be totaled and divided up amongst all shareholders. As with the partnerships and LLCs, the amount given to each shareholder is directly proportionate to the investment or share amount each held.
Closing Your Accounts
As your does close, your remaining accounts should too. This includes your business bank account and any business credit cards you may have held. Royal Legal Solutions can help you with every step in the lifecycle of business ownership. Set up a consultation today if you would like to know more about asset distribution and how to close your business without violating any laws or regulations.