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BUSINESS ENTITIES (not just Bankruptcy Issues)

BUSINESS ENTITIES (not just Bankruptcy Issues)Diane Drain2024-03-25T10:00:10-07:00

BUSINESS ENTITIES

More Than Just Bankruptcy Issues

Below I outline the intricate processes involved in the dissolution of Arizona Limited Liability Companies (LLCs) and the multifaceted considerations of business bankruptcy. It starts by presenting a detailed guide on the voluntary dissolution of an LLC in Arizona, as shared by Lisa Thompson, a noted bankruptcy attorney. The guide highlights key steps such as notifying known creditors, managing claims within specified deadlines, and the distribution of assets. It also distinguishes between the terms “termination” and “dissolution,” emphasizing the irreversible nature of termination. Furthermore, the guide advises on the practicality of considering Chapter 7 bankruptcy as an alternative if creditor objections are anticipated, and underscores the importance of settling professional fees before addressing creditors’ claims.

In the latter part, the content shifts focus to the broader implications of filing for bankruptcy from a business perspective, elucidating the types of bankruptcy available to small businesses and their potential outcomes. It discusses the critical aspects of business continuity, the legal complexities of bankruptcy proceedings, and the potential for personal liability for business debts based on the business structure. This section serves as a cautionary note, urging business owners to grasp the full spectrum of bankruptcy’s impact on both their business and personal finances. It advocates for professional consultation to navigate the complexities of bankruptcy, making an informed decision that considers the future of the business. Overall, the content serves as an essential guide for business entities contemplating dissolution or bankruptcy, emphasizing the need for meticulous planning and professional guidance in these legally and financially challenging processes.

The following is from my friend, Lisa Thompson, an excellent bankruptcy attorney.

LLCs have the option to voluntarily dissolve and go through the legal procedure for resolving or removing claims.

Chapter 7, Arizona Limited Liability Company Act

A.R.S. 29-3701 Events causing Dissolution of an LLC:

  • The LLC must give notice (plus a copy of the law (optional, but good practice)) to all known creditors in accordance with the law and file a Notice of Winding Up with the ACC.
    1. The known creditors have 120 days to submit claims to the LLC (or LLC counsel, which can be anyone).
    2. A claim made during the winding-up procedure can be rejected (statute states no grounds for doing so).
      1. The claimant only has 90 days after a claim is denied to file an action to enforce the claim. After that, the action is forever barred.
    3. Claims that are not filed in a timely manner are ineligible.
    4. This usually excludes a lot of claims because creditors frequently ignore explicit instructions.
  • The LLC should gather any assets during the 120-day term, and at the end of the 120-day period, any cash should be paid proportionately to individuals who filed claims.

Notes: Termination and dissolution are different concepts. An LLC cannot be reinstated after it has been terminated.  A dissolution is simply winding down and is revocable.

  1. This process may help you gauge how strongly creditors may object. If some creditors are aggressive, then consider filing for Chapter 7 bankruptcy and giving the funds to the trustee to handle.
  2. The costs associated with hiring an attorney or accountant throughout the winding-up process should be paid before creditors’ claims.
  3. The LLC should terminate only once all the funds are distributed.
    1. The person filing the Articles of Termination must attest that “All known properties and assets of the limited liability company have been applied and divided in conformity with A.R.S. Title 29, Chapter 7.”

FORMS and LINKS:

Dissolution_of_LLCs_-_2023.rtf
App_6-14_Notice_of_WInding_Up.pdf
App_6-15_Articles_of_Termination.pdf

Winding_up.pdf
Known_claims_against_dissolved_LLC.pdf
Other_claims_against_dissolved_LLC.pdf

The Lowdown on Business Bankruptcy: What You Need to Know

Bankruptcy is a complex process that can have significant implications for your business and personal finances. Before considering bankruptcy as an option for your struggling business, it’s crucial to understand the potential pitfalls in detail. Here’s a breakdown of some of the key factors to consider:

  1. *Types of Bankruptcy for Small Businesses*: Small businesses file for either Chapter 7, Chapter 11, or SubV bankruptcy. Chapter 7 bankruptcy involves liquidating the business’s assets to pay off creditors. This means that your business assets, including inventory, equipment, and property, may be sold off to satisfy outstanding debts.  While Chapter 11 and SubV bankruptcy allows the business to restructure its debts and operations while remaining operational.
  2. **Business Continuity**: Depending on the severity of your financial situation, bankruptcy may lead to the closure of your business. While some businesses are able to restructure and continue operations under bankruptcy protection, others may be forced to cease operations entirely. Assessing the viability of your business post-bankruptcy is essential to determine whether bankruptcy is the right path forward.
  3. **Legal Complexity**: Bankruptcy proceedings involve intricate legal processes and requirements. Navigating these complexities without expert guidance can be challenging and may lead to costly mistakes. From filing the necessary paperwork to adhering to court deadlines and attending hearings, there are numerous legal obligations that must be fulfilled throughout the bankruptcy process.
  4. **Personal Liability**: Depending on your business structure, you may have personal liability for business debts. In partnerships, sole proprietorships, and certain types of corporations, business owners may be personally responsible for business debts, including some tax obligations (like sales taxes). This means that your personal assets, such as your home or savings, could be at risk if your business files for bankruptcy.

Given the complexities and risks associated with business bankruptcy, it’s essential to seek professional advice before proceeding. Consulting with a qualified bankruptcy attorney or financial advisor can help you assess your options, understand the implications of bankruptcy for your business and personal finances, and develop a strategic plan to address your financial challenges.

In conclusion, while bankruptcy can provide relief for businesses burdened by debt, it’s not a decision to be taken lightly. By thoroughly understanding the potential pitfalls, including exposure to the owners/managers of the business, and seeking expert guidance, you can make informed decisions about the future of your business.

See article Lowdown on business bankruptcy, what you need to know.: https://dianedrain.com/lowdown-on-business-bankruptcy-what-you-need-to-know/

When an individual files chapter 7, their interest in their business (unless a sole proprietorship) is not exempt. It becomes an estate asset and the Chapter 7 trustee can elect to sell the business, and/or its assets. But, in order for a chapter 7 trustee to take control of the business, he/she must follow the law.  In many cases, this requires the trustee to become a board member or manager with sufficient rights to force the sale of the business.

Bankruptcy for Small Business

For more information about small business bankruptcy,  please visit the link below  “Bankruptcy for small business”.

More About Bankruptcy

Looking for more information about bankruptcy? Visit our Bankruptcy Articles & Links section for more information about bankruptcy

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