When a small business goes through rough financial times, there are many options to get out of a business – merger, liquidate, bankruptcy.
In determine which path to take when ending a business, the owner might first look over the business’ debts. The types of debts a business has may be a factor in deciding on bankruptcy. Here are a few categories of debts to evaluate:
The Internal Revenue Service requires small business owners, no matter the structure, whether sole proprietor, partnership, corporation, limited liability company, or limited partnership, to be personally liable for unpaid payroll taxes when a business hires employees. This means Internal Revenue Service can go after the assets of the owners when the business assets are not enough to pay the taxes. In NY, payroll taxes include Federal and state income taxes, Social Security and Medicare taxes. For the business suffering in economic hard times, bankruptcy may not be the route to if most of the debts are taxes. Filing bankruptcy does not discharge most taxes. However, filing bankruptcy may help to discharge other loans or credit, and free cash to pay taxes. To negotiate a decrease in tax debt, engage a NY attorney to work with the IRS to compromise. An accountant may know the numbers, but it is the attorney who has the negotiation skills and can interpret revenue codes. IRS Publication 908 – Bankruptcy Tax Guide discusses tax consequences of filing bankruptcy.
If a small business has a lot of loan debt, the owner needs to evaluate how the debt was taken out from the lender, whether in the name of the business or owner. Bankruptcy in the name of the owner may be required if a loan is taken out in the owner’s name rather the business’ name. This is because a loan taken out in the name of the owner allows the lender to go after the owner’s personal assets when the business is not able to pay.
If a business owes unpaid rent to a landlord, the small business owner is personally liable for the rent when the business is a sole proprietorship or when a partner, shareholder, or limited liability company member personally guarantees the rent. If the owner does not want the landlord to take personal assets to pay the rent, filing bankruptcy may be the answer.
Contact a NY bankruptcy attorney to learn bankruptcy options when implementing a strategy to end a business.