Business Dissolution Resources

A “personal guarantee” is your promise to pay your business entity’s debt if your business entity fails to pay the debt. Personal guarantees must be in writing and signed by you. If you are married, they should be signed by your spouse as well otherwise your community property is not subject to collection of the guaranteed debt. This is not necessarily true for credit card debt in Arizona.

Personal guarantees must be in writing and signed so look to your contracts with the creditor. This is not always true with credit card debt in Arizona. If you go through the dissolution process for your business your creditors are required to send the proof of what your business entity owes them so many times, we are able to determine if there is a personal guarantee on a debt that way. If you are a sole proprietor or a general partnership, you are 100% responsible for any business debt and there is no need for a formal written personal guarantee as you have no business entity separate and apart from you personally.

No, the personal guarantee is your PERSONAL promise to pay a debt. Once a business dissolves or is terminated, your obligation to pay the debt kicks in. However, many times creditors do not pursue the personal guarantee as they cannot find their paperwork, or they choose not to. Unfortunately, the statute of limitations on these debts in Arizona is six (6) years so you may not know for some time if the creditor is going to pursue you personally. Personal bankruptcy eliminates personal guarantees on business debt. Alternatively, if you have no other debt that would make bankruptcy a good option, you can try to negotiate a settlement

It depends. Key factors to consider are whether or not the debt is secured by business property (UCC-1); the amount of the debt; and type of loan. Likely if a business closes and it has no assets, there is nothing that the U.S. Small Business Administration (SBA) can do to collect a SBA Loan or EIDL. The SBA may still collect from business owners if they personally guaranteed the loan.

Personal guarantors remain responsible for loans they guaranteed even if the business closes . However, a business owner’s personal liability for an SBA loan or EIDL may be discharged in a personal bankruptcy. It is critical to have detailed records on how the EIDL money was spent before filing bankruptcy.

Commercial lenders may file a Uniform Commercial Code Financing Statement (UCC-1) on any secured business debt. It is important to know when planning a business dissolution or bankruptcy if the business debt is secured or unsecured. If there is a UCC-1, the debt is secured and if not, unless it is a vehicle or real property (which are both secured other ways) the debt is likely unsecured. The Arizona Secretary of State maintains the database for UCC-1 Financing Statement liens in the State of Arizona (link below).

I get it. The offers do sound tempting, but generally they are a stop gap before the onset of a larger problem which is paying them back. Before ever getting one of these loans, seek the advice of counsel and see what bankruptcy can do for you and your business. If you decide to get a private loan, read the fine print. Many times, money is pulled from your bank account weekly, the interest rate is high, and some loans require you to agree to a judgment against you personally and your business at the time you sign the loan. This means if you stop paying the loan, all the lender has to do is file the judgment with the court(s) and begin to collect from you personally as well as from your business.

A business is financially distressed if it has difficulty meeting its financial obligations. Essentially, a company is considered financially distressed when it is unable to generate enough income to cover its expenses. It is the equivalent of a person living paycheck to paycheck.

If your business is in financial distress or might become financially distressed, SEEK LEGAL ADVICE IMMEDIATELY. Information is power and you need to know what options are available to you so you can make educated decisions. Don’t wait until the business is completely dead or on its last legs, contact counsel and make a plan as soon as possible. Sometimes companies that think they are going to fail are able to get financially healthy with some adjustments that the law provides. Alternatively, you may need to shut down or sell. Make sure you have accurate, sound legal advice specific to your circumstances as soon as possible. Many ill-informed decisions inadvertently limit a business’ options. Contact us for a consultation today.

NO, NO and NO!!! You are a business owner dealing with an uncertain and changing economy. People who close their businesses are not failures. They are adjusting to the circumstances that have made the business unviable which sometimes includes shutting it down as it will never be able to recover. Under no circumstances keep the narrative that you are a failure in your head. It is a myth perpetuated by the uneducated and ill-informed.

I get it. Because your business is in financial distress, you are conserving your financial resources. However, at the very least you need to consult with a business law attorney familiar with the options available to businesses in financial distress, so you do not inadvertently create a bigger problem than the one you have. Also, in the winding up process you are able to pay your administrative expenses (attorneys and tax professionals) from any liquidation proceeds. In short, at minimum, you need to consult with an attorney and determine if you can proceed without counsel (which sometimes is possible with advice) or do you need an attorney to handle the actual shut down. Contact us for a consultation today and we will figure it out.

The two biggest mistakes that companies in financial distress make are: failure to talk to a qualified attorney about their options as soon as they know they are in financial distress; and failure to pay Payroll Taxes (Withholding Taxes)/TPTs (sales tax). First, speaking with a qualified attorney is helpful as each state has dissolution statutes that will guide the process. Many times business owners go about dissolution without advice and they miss some excellent opportunities for dealing with business creditors. Arizona has some incredibly helpful statutes to deal with creditors while dissolving an LLC or corporation and it is important to know what the options are as soon as possible so that you can make a plan. The second biggest mistake business owners make when their business is in financial distress is failure to pay Payroll Taxes and TPTs. These taxes are considered trust fund taxes and the owners of the company (and in some instances their bookkeepers) may be held 100% responsible for their payment and penalties. Pay these taxes when due even if it hurts. Failure to do so will create additional problems for both the business and its owners.

Yes, but we do not file bankruptcies for businesses. We can advise on non-bankruptcy options for a business and the broad strokes of what is available in a bankruptcy for a business, but we will not provide that service. We will be happy to provide referrals should you require bankruptcy services. However, generally, a bankruptcy for a business is rare unless it wants to maintain operations. Corporations, LLCs and various partnerships may file a Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy for the business entity itself. Chapter 7 bankruptcies are only for those businesses that no longer want to operate. Chapter 11s are for businesses that wish to continue to operate. Only individuals may file a Chapter 13 bankruptcy. It is not available to any business entity. However, a Chapter 11 (Subchapter V) is a hybrid between a Chapter 13 and a Chapter 11 that allows smaller businesses to reorganize and maintain their businesses without the costs and rigors of a traditional Chapter 11. Many times, a Subchapter V helps businesses reorganize because they can back their creditors off while they take steps to become financially healthy.

Maybe, but it may not be the best idea for you and your business. Filing a Chapter 7 bankruptcy for the business at the onset of a shut down, would not be my recommendation. It generally is more cost-effective and less intrusive to handle a business shut down through state law dissolution. Arizona has some excellent and effective dissolution laws that allow LLCs and Corporations to handle their debts outside of bankruptcy. Generally, I recommend proceeding with the dissolution first and see if you can resolve the business debt issue that way.

If you are closing your business, you need to ensure that the taxing authorities know about it so they stop expecting tax returns or assessing penalties for failure to file tax returns. When your next tax returns are due, you need to make sure that the returns are marked “Final”. This is true for both federal and state tax returns as well as TPT reports and WTH reports. You may also close your business account with the IRS if you want to although it is not

Just ceasing to operate your business does not end its existence if it is an LLC, Corporation or some type of limited partnership (LP, LLP or LLLP). You must terminate/dissolve or close the business with the property government agency for it to cease to exist. There are also statutory winding up processes that may assist you in eliminating business debt, but it is not mandatory that you go through a winding up process. Contact us so we can guide you through the option that is right for you and your business.

A formal winding up process may be the best option. A winding up process allows you to eliminate some creditors and pay others pro rata. A winding up may be an effective way to deal with the business debt. What you do not want to do, is pay yourself or some creditors over others without solid legal advice. If you pay creditors or yourself over other creditors, creditors may make claims against you personally for fraudulent transfers or preferential payments. Contact us so we can advise you on the proper treatment of your creditors.

Unfortunately, no. So long as the bill is addressed only to your business, the creditor can send it. If it is addressed to and demands money from you personally, that is a problem, and you should contact me. Your business is closed. It has nothing. It is not going to pay. The bills are a waste of paper, but there is nothing we can do about it. If you are not personally responsible for these bills and they are not addressed to you individually, you may ignore them.

Many times, even after a debt has been handled through a formal dissolution process, the lender will sell the debt in bulk with others to a collection agency or debt buyer. They do not tell the new debt owner about the dissolution. Send a copy of your Certificate of Dissolution or Termination to the new debt owner and see if that stops the efforts to collect. If they continue and the business is closed, there is nothing you can do and there is nothing they can do to the business. However, if the notice is addressed to you personally as the business owner, you may have a personal guarantee, and you should contact us so we can refer you to bankruptcy counsel to negotiate that debt.

In the state of Arizona, LLCs and corporations may formally wind up prior to dissolving their business. This is not a requirement, but it can be a useful tool when there are no personal guarantees, or the business owners are not sure if there are. The process starts with filing Articles of Dissolution or a Notice of Winding Up with the Arizona Corporation Commission. Once that is filed, a Notice is sent to the business’ creditors. Any creditor wishing to make a claim has 120 days to make that claim or is forever stopped (barred) from doing so. During the 120-day period, the business must liquidate its assets. Many times, businesses have no assets to liquidate, but if there are they must be sold to pay creditors. At the end of the 120 days, money, if any, from the liquidation is distributed to the creditors that made claims on a pro rata basis. Creditors that received the Notice and did not make a claim may not make a claim against the business in the future.

No, a formal winding up or business dissolution does not alleviate a business owner’s personal obligation to pay a business debt if the business owner has signed a personal guarantee. However, if it is unclear if there are personal guarantees, a formal winding up of the business may provide additional information to business owners. Creditors seeking to have a claim paid in a dissolution must provide a claim which includes documentation of the claim (which should include any contractual documents and personal guarantees). Also, the process will show which creditors will pursue payment of their claims. If they do not send in a claim, it shows that they may not be all that aggressive in pursuing payment.

Unfortunately, it could be up to six (6) years. A personal guarantee by a business owner to pay the debt of the business is a contract with the business owner and the creditor and if written, the creditor could have up to six (6) years to bring a lawsuit.