When it is time to dissolve a business, things can get complex. However, if business owners or partners do not follow the right procedures, the financial, legal, and business consequences can be serious.
Regardless of the reason your business is closing, it is critical to get the right advice about the complication factors of business dissolution in New York City. If you need advice about how to wrap up your business the right way, reach out to one of our experienced business dissolution lawyers for help.
The legahttps://rodriqueslaw.com/new-york-business-dissolution-lawyer/common-reasons/l termination of a company is known as business dissolution. A business may dissolve because a company is no longer profitable, because an event that triggers the company’s dissolution occurs, or simply because a business owner is ready to move on.
The first potentially complicating factor in dissolving a New York City company is reviewing the operating agreement, which may contain specific provisions about dissolution that were agreed upon at the time of the business formation. Business owners must follow these instructions, such as how to notify shareholders or divide assets.
Next, a business representative must file a Certificate of Dissolution for a corporation or Articles of Dissolution for an LLC with the New York Department of State, along with the appropriate filing fee. Without this step, the business will remain on the state’s list of active businesses. Remember to check whether the company is registered in other states; if it is, additional paperwork may be necessary to terminate the business in all jurisdictions.
Once the dissolution process has started, the company needs to officially “wind up” its business. This means that the company must not take on any new projects or contracts and must formally stop all business operations. A company representative must notify all stakeholders that the business is coming to an end and cancel any relevant licenses or permits.
This is also a critical period for settling any existing financial obligations. Under New York law, the business is advised to provide written notice to all creditors and pay any outstanding debts. Notice Triggers a six-month claims window, and can limit future liability.
If the company still has assets after the debts are settled, they must be liquidated. Any resulting funds should be distributed according to the provisions of the operating agreement, shareholder agreement or other corporate document. If no operating agreement exists, NY law provides a default waterfall: first to creditors (including members or shareholders if they are creditors), then to members or shareholders based on their percentage ownership interests.
Finally, company accountants must not neglect to file a final business tax return with the New York State Department of Taxation and Finance, as well as any relevant tax documents with the IRS, to avoid tax problems.
Missing steps during the dissolution process can have serious consequences. Failure to file means the entity remains active and liable. For example, if a corporate representative fails to file the Certificate of Dissolution, New York will still expect it to pay its business taxes. If the business is only partially dissolved, the company’s creditors could sue business owners or shareholders and argue that they should be personally liable under the doctrine of piercing the corporate veil. Piercing the corporate veil can occur in limited circumstances under NY law — typically when there is fraud, undercapitalization, commingling of funds, or failure to adhere to corporate formalities.
Improper dissolution can also lead to legal problems for New York businesses. For example, a company that does not properly wind down its business could still be sued for any contract violations or tort liability that resulted from the company’s actions. Finally, if the company still legally exists but the business is not in use, this could leave the company especially vulnerable to business identity theft or fraud.
The end of any relationship can be a difficult process. If it is time to end your business, it is critical to have a knowledgeable business dissolution attorney who can help ensure the proper procedures are followed.
Your lawyer can also advocate for you or serve as a mediator in the event of any disputes that might arise during the dissolution process. Reach out today to our knowledgeable attorney to protect yourself and your future business endeavors.
