Reasons for Leaving the Business
According to the Small Business Administration, the number one reason for business closures is that they simply are not making enough money (source).
Other reasons for closing or leaving a business include:
Death of a partner or owner. When a partner dies, the partnership agreement controls what happens to the partnership. The remaining partners may have the opportunity to purchase the deceased partner's share from his estate, in which case the value of the business, and of that partner's share, must be determined. A purchase agreement should be drafted, and payment arrangements made. In some cases, the death of a partner may terminate the partnership. In that case, valuation of the business is still necessary, and the assets and liabilities of the partnership distributed.
If the business is an LLC, the bylaws will similarly govern what happens if an owner dies.
A corporation is a legal entity independent of its owners or shareholders. The entity will survive the death of one owner or shareholder, but the owner's estate will still own his shares of stock in the company. The remaining owners will have to decide how to proceed.
Retirement or resignation. A partner or owner may decide to leave the business, in which case the bylaws or partnership agreement should govern what happens.
Involuntary dissolution or bankruptcy. In some cases, a business may be forced into bankruptcy by its creditors, or circumstances such as the loss of a lease or necessary licenses may force the business to cease operations.
Whether the owners decide to shut down or are forced by circumstances to cease operation, wrapping up takes some time and may be complicated. If there are employees, the employees must be notified of the closure, final paychecks issued, and final payments for tax withholding must be made.
Any outstanding contracts should be reviewed to determine how to end the obligations of the business entity and its owners. For example, if a lease term has not ended, the business may still be responsible for any remaining rent due through the end of the current term. Depending upon how the business is organized and who signed the lease, the owners may find themselves personally responsible.
Other outstanding contracts for purchasing supplies, service of equipment, or other services, should be examined to determine how the contract can be terminated.
When a business closes, federal, state, and local governments will need to be notified. The RIS, for example, requires different forms for making final withholding payments, reporting sales of business assets, ending business retirement plans, and other purposes. A full list may be found here.
Failure to provide required legal notices when closing a business may result in personal liability on the part of the business' owners or partners.
How a Business Attorney Can Help
Your attorney will be able to help determine what agencies, contractors, and other parties need to be notified of your business closure and draft the proper documents.
If there is time remaining on your lease, your attorney may be able to negotiate with the landlord to terminate the lease early, or to arrange for a sublease.
If arrangements have to be made for the sale or purchase of a business owner's share, your attorney will determine how the transfer should be done according to the bylaws or partnership agreement and prepare any sales agreements and other paperwork.
Talk to an experienced business law attorney at Rust Belt Law before you close your business and avoid costly mistakes. We can be reached at (814) 315-9255.