Closing a Business / Asset Sales / Liquidations in California

Skilled, experienced help with all aspects of closing a business
      - by experienced San Diego business Attorneys

Not every business can be sold or transferred.  If a business is not very profitable, or it depends heavily on the personal services of a departing owner, the best way to close it may be to comply with the various legal notices and other requirements and sell the business assets.  This is especially true in an economic recession, where a shortage of qualified buyers, difficulty obtaining buyer financing, and inadequate profitability make closing the doors the best solution.

If the debts of your business far exceed its assets or your personal assets, San Diego Law Firm can refer you to qualified bankruptcy counsel who can advise you on the benefits and drawbacks of bankruptcy.

However, if your business is solvent, or its assets can be sold for enough to pay any debts, then closing the business by selling its assets and complying with the various legal requirements may be the best option.  San Diego Law Firm can provide you with expert guidance and assistance should you decide to close your business and sell its assets.

Selling Business Assets

After deciding that an asset sale is your best exit strategy, the next step is to create a well thought-out plan for administering a successful asset sale that will allow you to move on to your next financial venture or to retirement.  In helping to protect your personal net worth, we will advise you on important considerations that need to be understood when closing your business and selling its assets, including the following:

• Strategize about how you can secure the most money from your asset sale.  Before liquidation begins, it's important to inventory all your assets (including assets you may overlook, such as customer lists or trademarks that could have a market).  Promotions are key, and you should carefully select and restore items as needed to ensure that all assets included in the liquidation sale are appealing.  Preparation can also help you avoid underselling your items: create a markdown schedule, and also figure out how much you would get for the asset if there were a forced sale, and then compare this liquidation value to the proposed sale price.  Also, make it clear to buyers that all sales are final and without warranty.

• Know your sale options.  There are many different types of asset sales, and your choice will be guided by timing considerations and the kind of assets you will be selling.  A few of your options include auctions, a going out of business sale, consigning items to specialized dealers, and selling to your competitors.  Regardless of the type of sale, identify when you will have the best market for selling your assets and avoid a lengthy sale in order to lower your costs and secure yourself the most net proceeds possible.

• Comply with the Bulk Sales Law.  Since you will be liquidating all or a majority of your business's assets, California's bulk sales law will probably apply to your transfers.  Your business must itemize all debts and notify creditors and claimants that the business will be closing and the assets sold off.   You must provide complete and accurate statements to prevent facing criminal punishment.  We will prepare the necessary notices and handle publication and filing requirements so you can fulfill this legal obligation.

• Consider hiring a liquidation consultant.  A liquidation consultant or similar expert can assist you in carrying out the actual sale by developing an advertising plan, training your employees for the liquidation, providing projections, and so on.  We will advise you on the qualifications you should look for when finding a liquidation professional whose services will be suitable to your particular business sale.

• Follow the law when handling your sale proceeds.  The first priority for the proceeds of your asset sale will be to pay employees for wages and benefits as required by the California Labor Code, then you must pay all state and federal taxes owed.  The order in which creditors are paid off depends on their status, e.g. secured, deferred, or ordinary.

• Be knowledgeable about tax considerations.  An asset sale has particular tax consequences which we will explain to you.  Each asset sold will typically be analyzed individually to determine whether a gain, loss, or ordinary income has resulted, depending on the type of asset sold.  We will also counsel you about your tax obligations when closing your business, which include filing the final annual and employment tax returns, making final federal tax payments, reporting the sales and exchanges of your business assets, and reporting partnership or stock shares. 

Closing a Business run by a Partnership

If your business is organized as a partnership between two or more persons, then we will ensure you understand the additional considerations and legal steps required upon your business's closing (called a “dissolution”), including those discussed below: 

• Your partnership may have a written agreement detailing how dissolution issues will be handled.  If so, we will review your agreement and make sure your interests under it are being met and that your business is properly terminated.  Otherwise, you can also dissolve your partnership by giving your partners notice of your intent to terminate the partnership.

• It's often beneficial to hire an independent appraiser to value each item of partnership property.  After the property is sold, any remaining proceeds are divided between you and your partners in proportion to your partnership ownership percentages.

• You and your partner are personally liable for all partnership debts, even if you yourself didn't incur these debts because each partner has “joint and several liability” under partnership law.  For this reason, it's especially important to properly notify all creditors of the dissolution to limit further personal liability.  Also, you will need to determine where you stand with an accounting of the partnership's assets and liabilities as of the day you withdrew from the business. 

• It's essential to give all clients notice that the business is being terminated to avoid additional liability in case your partner enters into new contracts or transactions.  We will also advise you on your and your partners' fiduciary duty to each other regarding clients.  For example, legal liability can arise when customers, clients, and their files are improperly handled.

• We will also prepare and file business termination documents with the California Secretary of State, depending on what type of partnership your business is formed as.

• Partnership law is strict regarding the order in which the business's liabilities must be paid.  Creditors must be paid first, followed by loans you and other partners made to the business, and then you are repaid your investment in the partnership.  Afterwards, any remaining profits are distributed among the partners.

Closing a Corporation

As discussed above, there are many things you must consider and several actions you must take when selling your business's assets.  Additionally, if your business was organized as a corporation, our attorneys will advise you on the “winding-up” process with you so that your business is successfully terminated and your financial interests are not compromised.  Consider the following:

• Even if your corporation is no longer doing business, if the business hasn't been legally terminated and it doesn't fulfill its reporting and fee payment obligations, then the corporation loses legal protections and you can be held personally liable if a lawsuit arises relating to the corporation's activities or products.  To prevent these consequences, we will prepare and file your business's termination documents with the California Secretary of State, which often requires two separate filings.

• We will also advise and assist you with formal corporate procedures that must be followed to close your corporation, including a proposal for dissolution by the board of directors and a vote by the shareholders.

• You must additionally report your corporation's dissolution to the Internal Revenue Service.  We will ensure this paperwork is filed at the proper time.

• Creditors must be properly notified of the dissolution and claims fully satisfied.  Afterwards, remaining assets may be distributed among shareholders.

Benefits to Our Clients

We are committed to keeping our business clients fully informed and offering them the guidance and support they need to make good choices between different legal alternatives.  San Diego Law Firm will ensure that all of your legal matters are supervised by a seasoned senior partner who will act as your Personal Legal Representative and oversee your legal affairs, even if another attorney is performing a particular service for you. For as long as we represent you, you will receive the same dedication and quality of service that brought you to us in the first place.

How to Contact San Diego Law Firm

We handle matters throughout California, and new clients are always welcome. For more information or to make an appointment, please contact us either by:

Telephone: (619) 794-0243

E-mail: contactus@SanDiegoLawFirm.com
 

We can be reached by telephone Monday through Friday, 9:00 a.m. to 5:00 p.m. You may also use the form below to contact us. This form is answered Monday through Friday during the work day. Please remember that for us to become your attorneys, we must first have a written attorney-client agreement signed by both of us, so please do not email any confidential information at this point. After we have reached an agreement with you, we can then exchange information freely. We look forward to helping you.

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