So You Shut Down...Now What?

nat rosasco • December 8, 2017

Whether you happily unwound your business or begrudgingly shut your doors, you should consider a formal dissolution of your company when you decide to close-up-shop for good. Completing a formal dissolution follows through on the principle that you likely applied when forming your company to begin with: it maintains a shield for your personal liability from company debts.



In this article, I navigate the key steps to a formal dissolution of your corporation or limited liability company (“LLC”) that will enable you to move on to your next venture feeling confident that no lingering liabilities will follow. Keep in mind that while much of this article applies to other entity formations, certain ones, like professional service corporations, have their own nuances to dissolution.


Here is a summary of the steps to a formal dissolution for corporations and LLCs, followed by more detail below:

1)  Pay your Employees and Taxes.

2)  Notify the Secretary of State.

3)  Inform and Negotiate with your Creditors.

4)  Thoroughly Identify and Carefully Distribute your Assets.

5)  Cancel your Licenses and Terminate your Contracts.


But First! - Follow your Company’s own Guidelines.

Before you dive into the formal steps of dissolution, consult with your company’s organizational documents. Bylaws and Operating Agreements typically speak to how you may voluntarily dissolve your company, often including the number of owner votes required to dissolve, instructions for the wind-up process, and preferences for asset distribution. Don’t overlook these documents now, especially when you’re dealing with multiple owners who will undoubtedly be looking to get the most of the company’s remaining assets. If you fail to follow the procedures the owners agreed to when they set up the company, your dissolution may not in fact be valid!


1)   Pay your Employees and Taxes.

Paying your staff and taxes is paramount to a successful formal dissolution. You must pay your employees their wages, including base pay, overtime and other applicable compensation. Also, you must pay the IRS and Illinois Department of Revenue the withholdings, sales, use and other applicable taxes that your business collected.


Federal and state laws provide hefty penalties for company executives who bail on their company’s wage and tax obligations. Tell your accountant of your plans for dissolution so that he or she can prepare the final quarterly and annual tax forms. Taxes are non-dischargeable debts that can follow you personally for years after they were due with significant late fees if the IRS deems you the “responsible person.”


2)   Notify the Secretary of State.

A formal dissolution will not be complete without notifying the Secretary of State. For corporations, that means filing Articles of Dissolution detailing how the corporation authorized the dissolution and the status of the issued shares. LLCs meanwhile require a Statement of Termination which asks for little more than a forwarding address.


Note that with either entity, the Secretary of State will update your company’s status on its website to dissolved/inactive once it processes your dissolution forms. You’ll want to plan the rest of your dissolution in advance so that your creditors or other parties don’t find out by surprise of your dissolution before you’ve had the chance to notify them yourself.


3)   Inform and Negotiate with your Creditors.

Fortunately, you don’t need to file for bankruptcy to obtain relief from your company’s outstanding debts. In fact, both the Business Corporation Act (“BCA”) and Limited Liability Company Act (“LLCA”) provide a procedure that allows you to actually bar your creditors from pursuing company debts, similar to what a bankruptcy court would provide but without the administrative costs. But you must follow the procedures intently, which involves notifying creditors of your company’s dissolution and providing them with time to raise a “claim” for an unpaid debt with you.


Should a creditor not send you a claim – and provided you followed the procedure correctly – it’s barred from later pursuing the company debt. On the other hand, you’ll need to address any claims you actually receive within the 120 day period set forth in the BCA and LLCA. You do have the option to settle the debt or reject the claim; however, rejecting a claim may invite a lawsuit. Both the BCA and LLCA provide that a rejection notice triggers the start of a 90-day clock for the creditor to file suit against you, else lose its claim altogether. In either case, it’s better to address the debt up-front, where you can negotiate on presumably friendlier terms. It only takes one creditor to file a lawsuit that will cost you more in attorney’s fees in the long-run, even if your defense is successful.


4)   Thoroughly Identify and Carefully Distribute your Assets.

Most business owners don’t appreciate all of the assets that their companies obtain over the lifetime of their businesses. Some assets are easy to identify and value, such as cash in a bank account or company equipment. But others require a deeper analysis. Consider, for example, whether your company’s trade name or logo would be worth something to a former competitor. Think about whether your domain name for your website receives enough traffic to the point where someone may buy it from you rather than let its registration lapse. Don’t overlook assets that you could use to monetize and potentially resolve company debts.


Whatever assets you identify, take caution in distributing assets to company owners, or “insiders.” Both the BCA and LLCA require you to apply your assets first to creditors before distributing to owners and insiders. It’s common for one of the company’s founders to want to purchase a valuable asset, such as a patent, for use in a future venture. You’re allowed to sell assets to owners and insiders but you cannot grossly undervalue them in a “sweetheart” deal. There’s an inherent conflict between the owner’s or insider’s desire to get a great deal and your duty of loyalty to the company. If the sale doesn’t pass for sound business judgment or leaves the company unable to pay its debts, you may find yourself facing a lawsuit from another owner or a creditor.


5)   Cancel your Licenses and Terminate your Contracts.

For every company, there are more dissolution tasks than shutting off the lights and closing the bank account. Consider all licenses you’ve obtained to operate and determine what actions you must take with their respective agencies. Look at all services to which the company subscribes and figure out how to effectively cancel them without accruing more debt. If you rent property, review your lease to see how you can terminate your possession and tenancy, and be sure to check for any personal guarantees as those will follow you despite the company’s dissolution.

Remember: the fact that your company is dissolved may not insulate you from liability if you don’t properly dissolve the company. Plan ahead to minimize potential liabilities. Hire a professional with experience in closing companies if the process seems daunting. The costs of formally – and properly – dissolving your company could save you a lot more in the long-term.

       

Tim Oliver is an attorney and advisor for small-to-medium sized businesses. He helps clients address the many legal issues they encounter throughout a company’s lifetime. Tim brings to business dealings what he’s learned during his several years’ litigating business disputes. His clients appreciate his detailed plans and efficient work product. To learn more about Tim, visit www.ghulaw.com.

Employers Can Require COVID-19 Vaccinations For Most Employees

By nat rosasco • February 25, 2021
As this relentlessly awful year mercifully draws to a close, a light at the end of our pandemic tunnel is rapidly approaching. COVID-19 vaccines are poised for approval, and it is expected that distribution will begin in earnest shortly. But no matter how much and how confidently the FDA and other health experts proclaim these vaccines to be safe and effective, there are large numbers of Americans who say they won’t get the shot when it becomes available. The most recent Gallup poll found that only 63 percent of Americans say they are willing to be inoculated against the disease. Many of those who don’t want to get vaccinated will soon find out that they work for an employer who feels differently. Those employers may also tell them that they either need to get the vaccine or need to find a new job. And, in most cases, employers may be well within their rights to terminate employees who refuse to take the COVID-19 vaccine. Mandatory Vaccinations Are Not New Companies that have spent the better part of the year – and lots of money - trying to keep their workplaces COVID-free see the vaccine as the apex of those efforts. With a fully vaccinated workforce, business owners can operate without disruption and provide employees, customers, clients, and patients with confidence and peace of mind. But all of those benefits of the vaccine only accrue to fully vaccinated workforces. So, many companies may mandate that employees get their shot as a condition of continued employment. By doing so, they are following a legally sound path that predates the current pandemic. Well before anyone had heard of coronavirus, plenty of employers, primarily in the health care sector, required employees to get the flu vaccine and vaccinations against other infectious diseases. Most public school districts also require proof of vaccinations before a student can enroll and attend classes. Since most employees in Illinois work on an “at-will” basis, they can face termination for almost any reason not expressly prohibited by federal, state, or local laws. Generally, no law stands in the way of an employer requiring the COVID-19 vaccine for its workers. ADA and Religious Exceptions However, employers who make vaccines mandatory need to be mindful that employees with legitimate health or religious concerns about the vaccine may be protected from termination and other adverse employment actions if they refuse the shot. But these exceptions don’t necessarily apply just because someone doesn’t believe in vaccines generally (“anti-vaxers”) or thinks that forcing them to get vaccination is an infringement on their liberties. Employees who have a disability recognized under the Americans with Disabilities Act (ADA) that prevents them from taking the coronavirus vaccine cannot be forced to get the vaccine, so long as their exemption does not impose an “undue hardship” on the employer. Such disabilities in this context may include a compromised immune system or an allergy to an ingredient in the vaccine. While there has been no definitive guidance on the subject, one could credibly argue that an employee’s refusal to get vaccinated is an “undue hardship” if it places the health and safety of other employees and visitors at increase risk of infection. Even in such cases, however, an employer may need to make a “reasonable accommodation” for the employee, such as allowing them to work from home. Similarly, the anti-discrimination provisions of Title VII of the Civil Rights Act of 1964 may protect a worker if their “sincerely-held religious beliefs” preclude them from getting a vaccination. Such beliefs do not include political or personal views. The burden is on the employee to demonstrate the legitimacy of their religious objections to the vaccine. More Than Legal Issues To Consider Even when an employer is within their legal rights to require employees to get the COVID-19 vaccine, other considerations may weigh against such a mandate. For example, they may need protection against an employee who has an adverse reaction, even if they signed a waiver upon receiving the shot. A vaccination requirement may also get an adverse reaction from employees generally as well as the general public if it seems heavy-handed and overreaching. Of course, those that decide against a mandate face risks if someone does contract the coronavirus in the workplace and sues. Please Contact Grogan Hesse & Uditsky With All Of Your COVID-Related Employment Questions If you have questions or concerns about how to handle vaccinations or other employment issues related to COVID-19, please call us at (630) 833-5533 or contact us online to arrange for a consultation.

Are You Eligible for the Second Round of PPP Loan Forgiveness?

By nat rosasco • January 11, 2021
The Paycheck Protection Program (PPP) is back , offering a second round of loan forgiveness to new borrowers and qualified second-time PPP borrowers. The second round of PPP loans has earmarked up to $284 billion to support business owners' payroll costs and other eligible expenses through March 31, 2021. Loans will be available to first-time participants on Monday, January 11, and existing PPP participants on Wednesday, January 13. First Draw PPP Loan Eligibility Borrowers that did not participate in the first round are generally eligible for a First Draw PPP Loan if they were in operation on February 15, 2020, and fall into one of the following categories: Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans. Eligible self-employed individuals (including sole proprietors and independent contractors). Non-profit organizations, including churches. Accommodation and food services operations with no more than 500 employees per location. Sec. 501(c)(6) business leagues with no more than 300 employees that do not receive more than 15% of its income from lobbying. Qualifying news organizations with 500 or fewer employees per location. Second Draw PPP Loan Eligibility Existing PPP participants are generally eligible for a Second Draw PPP Loan if the borrower: Used or will have used its First Draw PPP Loan as authorized. Has no more than 300 employees. Can prove it has suffered at least a 25% reduction in gross income between the same quarters in 2019 and 2020. Our team is committed to monitoring new developments with the PPP and providing you with the information you need. It is essential that your small business consults with knowledgeable corporate attorneys , financial advisors, and accountants on your PPP eligibility and forgiveness applications. If you have any questions about the new eligibility requirements or any other issues involving the PPP, please feel free to call or email us.

Amendments to PPP Loan Forgiveness

By nat rosasco • June 5, 2020
Many businesses that received Paycheck Protection Program (“PPP”) funds are coming to the end of their respective eight-week time periods (“Expenditure Period”) during which they must use the PPP funds to obtain forgiveness under the CARES Act. Unfortunately, many of these businesses have found it difficult to reopen and remain fully operational throughout the Expenditure Period and consequently to meet spending thresholds necessary to obtain full forgiveness. Luckily for these businesses, some much needed flexibility is on its way. Paycheck Protection Program Flexibility Act On June 5th, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. The PPPFA made the following changes relevant to PPP loan forgiveness: Extends the Expenditure Period from eight weeks to the earlier of twenty-four weeks from the date of the loan origination or December 31, 2020. Reduces the required payroll spending amount to a minimum of 60% on payroll instead of the current 75% minimum requirement. This would allow businesses to use the remaining 40% of the PPP funds on rent and other operational items as needed. Extends the deadline for workers to be able to be rehired to December 31, 2020 instead of the current cutoff of June 30, 2020. Extends the PPP loan to a five-year term instead of the current two-year term. As any amendments governing the use and repayment of PPP loans may be vital to a small business’ ability to continue to operate and successfully plan for the future, our team will continue to keep you up to date on the on-going developments. As always, it is important to consult with informed attorneys, financial advisors, bankers and accountants on how best to use your PPP funds. Should you have any questions, don’t hesitate to call or email us.
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