Legal Advice when closing your business.
There are many issues that can come up for a business when it is closing. As an attorney, Nick Heimlich has represented businesses that have had to close and to help deal with the legal issues that often arise. Closing a business can be very messy depending on the type of business and liabilities or contracts or commercial arrangements of that business.
When a business owner wishes to close a business, they need to make a list of many potential issues to make sure that they are dealt with timely and appropriately.
Can I sell or transfer this business instead of closing?
Sometimes, even a business that is in the process of closing can sometimes sell that business to a prospective business owner. It may seem counterintuitive that a business that is closing could be sold, but it happens for a variety of reasons.
A closing business may have valuable clients that could be transferred, valuable equipment, a good location, or a franchise or other contract that could be assumed. To better understand the intricacies of transferring a franchise or other business assets, explore our insights on the essential components of a franchise purchase.
What are the advantages of Selling the business versus closing?
The most obvious advantage of selling the business is the extra money the business owner may get either from the sales price or from avoiding business liabilities. The downside of selling is that the transaction is now not just run by the business owner, but they must also work with the prospective purchaser to make this happen. There will also be some transaction costs for the sale.
The transaction costs for the sale may include a business broker who sells the business, as well as tax or legal advice. Ensuring your business contracts are legally enforceable is critical to avoid potential disputes during such transactions; our comprehensive guide offers detailed guidance.
If you are looking to sell or close your business, you must make a list of all the contracts, bills, liabilities and assets of the business.
When you are looking to close or sell your business, you need to take stock of the business and its contracts or problems. For example, here are some categories of contracts that a business may have:
- Lease Agreement for Real Estate
- Selling the Real Estate if Owned
- Franchise Agreements for a Franchise
- Vendor Contracts
- Equipment Leases
- Loans for the business, such as Small Business Administration Loans, Lines of Credit or otherwise.
- Employees and Payroll Expenses
- Taxes (Sales, Payroll and/or Income)
- Equipment (such as computers, furniture, stoves, servers, medical equipment, etc.)
- Client List
- Business Certificate or License
- EDD Payroll expenses
- Business Commercial Insurance
- Workers’ Compensation Insurance
- Legal Claims (such as by customers who are injured, vendors with contract disputes, employee claims).
Legal Advice for Closing or Selling a business.
Nick Heimlich has advised business owners to deal with selling the business and also closing a business. I’ve advised on making sure the client tries to close down the business including the steps above.
Nick Heimlich has advised business owners that are trying to exit a franchise agreement. Franchisors will sometimes let a franchisee out of the contract early, depending on the contract terms or the reason why the business is closing.
The key is communicating with the franchisor to give them an honest and good-faith reason why the business needs to close. While honest communication won’t prevent all franchise disputes, it is a good first step. Nick Heimlich has also advised clients who have had franchise agreement lawsuits when a franchisor does not want to let a franchisee out of the contract.
Mr. Heimlich has also advised on employee claims after a business closes. Sometimes, the employees are claiming unpaid wages, unpaid bonuses or other items. Mr. Heimlich has advised clients on dealing with getting out of and lawsuits regarding lease agreements as well.
While closing a business may not be fun, a business attorney may be able to help a business owner understand the process and negotiate difficult situations.
