In Kansas and Missouri it’s fairly simple to form a Limited Liability Company (LLC) or incorporate a Corporation. Both of these structures help protect the owners (or members) from some liability and also have some tax advantages. In fact, many people set up these businesses themselves, although we recommend having an attorney review these plans first. We may catch some issues you haven’t considered when you start a new business.
But many small businesses fail over time. So what happens if you have an LLC or a Corporation and want to stop doing business. This is where things can get tricky. Sometimes people want to stop their current business and start a new business. There is nothing wrong with that. But if the new business is the same as the old business, the owners/members have to watch out for “successor liability”.
For example, if I run ABC Computer Repair, and I stop operations and open up DEF Computer Repair, LLC, these two companies do the same work, with the same operators. If I just simply take the assets from the first company into the second, my first company’s creditors could try to come after my new company. Suddenly that protection from creditors isn’t so strong!
When a business ceases to operate, the owners/members need to account for the assets. That could mean paying outstanding taxes, paying any employees, and accounting for secured creditors like SBA loans. But simply dumping everything into the new company like a gift is going to make a lot of people upset and open you up to claims if you or the company enters bankruptcy.
Before dissolving or stopping business (and also before starting a business, especially with a partner!), give us a call or contact us through our website to discuss potential risks and how to minimize those risks so you can rest easy and start fresh.