Although we don’t like to think about it, there comes a time when your business needs to wind down and cease operations. Maybe it’s voluntary, such as when you are just retiring, or involuntary, such as when creditors or bad business are just making it more difficult to continue.
One thing to remember when you are winding down business operations, is your duty to the company. Dissolving a business can create a lot of ethical problems and dilemmas, because there may be a lot of people pulling you in different ways.
Our Chicago business attorney at Ellis Legal explains more below.
Creditors and Investors
On the one hand, you may have creditors who insist on being paid whatever debts they may still be owed.
But on the other hand, you have shareholders or other investors—and if the company has assets to sell or liquidate, they may see those assets as something that they should receive their fair share of. In the meantime, you may be thinking of the future—protecting your family from liability or ensuring you have money to take care of them.
Don’t Take Advantage
If you are an officer, director, or owner, you likely can see the end of the road before your investors, shareholders, or creditors do. That can open the door to the temptation to take advantage of things—for example, to pocket a few more dollars or to send a business opportunity another way.
That’s bad news—don’t take advantage of your position and, thus, violate your fiduciary duties just because you have advanced notice of the business coming to an end.
Dealing With Creditors
You should inform your creditors that your business is ending and winding down. In fact, you should treat yourself as a fiduciary to your creditors, as well as your business. This is to avoid creditors coming after you, personally, for business debts, which they will do if they suspect that you have furtively taken assets, profits, or cash for yourself or your investors without letting creditors know.
Creditors will also come after you, personally, if they suspect that you are engaging in any actions that could be considered fraudulent transfers. For example, they may sell off assets for pennies on the dollar or transfer corporate property into the names of friends or family.
You have a legal obligation to satisfy your creditors from the proceeds of any profits or liquidations from the company before your investors get any of that money. That may not please your investors, but remember, investors get paid from profits from the company, and profits come after the payment of debts to creditors.
You can, of course, challenge a creditor’s claim if you don’t believe it to be valid. However, any funds that the creditor claims should be held back and not paid to other creditors or investors until the dispute is resolved.
Be Above Board
When a business is wrapping up, investors may be angry or upset. This is when they will likely most scrutinize your corporate books, records, and dealings. It is not a time to do anything that could be second-guessed when it comes to your fiduciary duties.
We can help whether you’re starting or ending a business. Speak with a Chicago business litigation attorney at Ellis Legal at (312) 967-7629 today.