Many businesses are surprised to learn that the legal technicalities involved in winding up a business are almost more complex than starting or running the business ever was. And failing to pay attention to those technicalities can leave your personal assets at risk years down the road. A business owner that doesn’t properly wind down a business can face unexpected liability for business debts or other problems. So how do you wind down your business so to protect yourself from surprise liability in the future?
Start With Your Business’s Governing Documents.
Most businesses have an operating agreement, shareholder agreements, or articles of incorporation and bylaws. And, most of these documents have some pretty specific direction about how the company must go about shutting down operations. A company that fails to follow the procedures in its own governing documents may leave itself open to future claims from fellow owners, business vendors, clients, customers, and others.
Develop and Follow A Written Winding Up Plan.
A winding up plan is a formal document that guides the company, and the people running that company, during the winding up process. First, it helps everyone understand their roles and responsibilities during winding up. Second, and sometimes more importantly, it acts as a checklist to make sure the company completes all critical steps in the winding up process that will protect the owners, shareholders, and directors from potential future liability.
Ensure Your Winding Up Plan Complies with State Statutes.
Most states have statutes describing certain steps that companies must take during their winding up process to protect against future liability. In Washington, for example, for an LLC, these requirements are set forth in RCW 25.15. In Idaho, you’ll find these requirements in Idaho Code 30.25. To make things even more interesting, some courts interpret portions of these statutes in surprising ways. So, even though your governing documents give you some of the direction you need to properly shut down your business, don’t neglect the requirements in your state’s statutes.
Consult A Pro.
The dissolution and winding down process is rife with traps for the unwary. Although many can dissolve and wind down a business, few can do it while also minimizing the possibility of future liabilities and future lawsuits. So, your best bet when winding down is to work with an experienced attorney. An attorney who knows not only the hoops and how to jump through them, but more importantly, how to cross every t and dot every i to make sure your former business isn’t going to come back to haunt you. Skepsis’ attorneys have a long track record of protecting businesses from future liability – schedule your consult today.
