Three Things to do if Your Business is Dissolving

By Lane V. Erickson, Idaho Business Lawyer

The creation of a new business is an exciting thing to be involved in. The creation of a new business represents the hopes and dreams and efforts of an individual to be successful. In fact, that's what many call the American dream, where just about anyone can become extremely successful regardless of who they are or where they are from. Because of this, the start of a new business usually only involves thinking about positive things. In other words, most people who start a new business, aren't thinking about what it will be like when the business comes to an end and has to be dissolved. It's for this very reason, that every individual who is thinking of starting a new business should consult with a qualified attorney to help them with the process.

For more than 70 years the premier Idaho business attorneys at the Racine law office have worked with clients in the creation of numerous businesses. We have worked with all kinds of clients in avoiding the landmines and problems that can arise in the creation of a small business. Additionally, we have guided numerous clients through the process of dissolving a business when it comes to an end. Our team of attorneys includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of the attorneys on our team is skilled, knowledgeable, and experience in assisting clients with their business needs including organizing, creating, and helping in the operation or dissolution of a business.

Again, nobody begins a business by planning for it to end. However, this is exactly what you should do when you begin a new business. The reason for this is that if you have a plan in place about how your business will be dissolved, then no one who is involved in the business will be surprised by the actions that are taken when the business comes to an end. Again, using a qualified attorney to help you with this process is vital.

To help you think about these things, below are three specific steps that you should be aware of in the event your business is dissolved. These steps will be applicable regardless of whether the business comes to an end on purpose, or simply because it can no longer function.

The very first step involved in the dissolution of a business is selling the assets. Assets of a business include not only the cash in the business but also any machinery, equipment, vehicles, or other tangible personal property. Assets could also include accounts receivable which is money that is owed by others to the business. Finally, assets could include intangibles such as patents, trademarks, or printed materials that are subject to copyrights that are owned by the business.

The reason that liquidating or selling assets is the first step, is because when a business is dissolved, there is usually a line of individuals with their hands out waiting to be paid. These individuals will start with creditors and will eventually also include the owners of the business. In other words, unless the owners can come to some agreement on how assets should be split up, they usually must be liquidated and turned to cash which then can then be easily distributed amongst the owners of the business based on the ownership interests they hold.

The next step after liquidating or selling all the assets of the business is to pay all the creditors of the business. In fact, creditors have the right to be paid before any owners of the business receive any distributions of assets or money from the dissolved business.

Creditors can come in many varieties but usually two categories work best to describe the types of creditors that exist. The first would be secured creditors which would include the bank that holds the mortgage on property, or the lender whose name is on the certificate of title to a vehicle. Secured creditors could also include lenders who have provided money to the business and have received a pledge of other tangible property as security for payment of that loan. When a business dissolves, secured creditors are the very first group that are paid. Secured creditors can either be paid cash to satisfy the amounts that are owed to them or if there isn't enough cash available they would have the ability to foreclose on the property that was pledged by the business to secure the amounts that are owed.

The next type of creditor is an unsecured creditor. This would be a creditor such as a credit card company, or a bank that allowed an open line of credit and didn't require any pledge of security. After secured creditors are paid, if there is any money or property left in the business, unsecured creditors then have a right to be paid the amounts that are owed to them.

If after paying secured creditors and unsecured creditors there is any money or assets left in the business, this is when distributions are made to the owners of the business. Each owner will own a certain specific percentage of the business. The percentages of ownership are usually detailed in the corporate documents themselves. Once the percentages are established, any money, or assets left in the business, are distributed based on the percentages of the owner’s ownership interest.

After all creditors have been paid, and any remaining assets have been distributed to the owners, the next step that should be taken is that a formal dissolution should be filed with the Idaho Secretary of State's office. This provides formal notice not only to the Idaho Secretary of State's office, but also to all other interested parties that the business has been dissolved. This will avoid any confusion about whether the business is continuing to operate in any way.

If a formal dissolution is not filed with the Idaho Secretary of State's office, the state's register will continue to list the business as a going concern. The dissolution then will only occur if the business fails to file its annual report. When this occurs, the Idaho Secretary of State's office will administratively dissolve the business.

It's never easy to bring a business to an end. However, we have assisted numerous clients in dissolving their corporations and other businesses and we are confident that we can answer your questions and help you too.

Our team of Idaho lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.