Do you need to close your small business after it fails to take off? While this isn't the outcome any entrepreneur wants to see, you're far from alone. But one important question you must answer for yourself is whether to seek bankruptcy protection or simply close your doors and stop the business yourself. To help you make the best choice, here are some indicators that each path may be right.
When to Consider Bankruptcy
A corporation or other distinct business entity doesn't receive full discharge of debts in liquidation bankruptcy like individuals do, so it offers less protection from debts. However, if owners or management personally guaranteed any business debts, they may want to seek both a business bankruptcy and personal bankruptcy to prevent creditors from coming after their own assets.
On the other hand, because a sole proprietor is not distinct from their business, sole proprietors can still receive the full protection of discharge. If a sole proprietor simply walks away from a failed business, they remain liable for all its debts.
Many business owners who want to tie up their business in the fastest manner, or who don't want to invest a lot of their own time doing the work of closing, may use bankruptcy to streamline this work. The bankruptcy trustee will take over management of the business, arrange for liquidation, and distribute assets. This allows the owner to move on, perhaps finding other employment in the meantime.
When to Consider a DIY Approach
Winding up your business yourself can be advantageous if you want to retain control of the operation for as long as possible. Many times, the owner can get the most out of the business's final period, continuing to work and negotiating higher sales for assets than a trustee would. The owner may also want to control who gets paid, when, and how.
Bankruptcy can also bar insiders — owners and management, in general — from purchasing assets of the company. If you want to buy some intellectual asset from your corporation or an employee wants to strike out on their own, the trustee may not allow this. In this case, you may want to keep things out of court and pursue fair purchases on your own.
How to Decide on Bankruptcy
Clearly, the decision to declare bankruptcy related to your business has many factors. There is no one-size-fits-all answer, and the best place to begin is to consult an experienced bankruptcy attorney in your state. Make an appointment today to get answers to your questions and start on your journey past your business setbacks.
For more information about business bankruptcy, contact a lawyer in your area.
