The top priority while managing your financially-distressed organization, particularly before it is shuttered, is to make sure that there is no personal liability because of the actions you fail to take or you are taking presently. Your business must have been set up in such a manner that officially or legally, you will not be held personally liable but in your anxiety over intense financial issues, you may end up losing this protective shield partly or fully if you are careless. You must be well-aware that business debts do not dissipate in the air just because you are closing down the business. You would still be encountering liability for employment-associated disputes or defective products. It is quite a challenging task to manage a business that is encountering financial distress; however, the tips mentioned below could help you in dissolving your business without inviting any issues including lawsuits.
A Guide to Managing a Financially-Distressed Organization by Mike Giannulis
Give Top Priority to Paying Your Taxes
It is of pivotal importance to keep all your taxes current. You may be held personally liable by the IRS or the Internal Revenue Service for not paying taxes. You should give top priority to paying off timely all the taxes that have been withheld from the salaries of your employees. Remember that even if late payments of taxes are received, the IRS follows a policy that may help in eliminating or reducing penalties. It is mandatory on your part to maintain meticulous records of all your business expenses. Remember these records provide evidence that you have been cutting out all needless expenditures and even made tax payments promptly to the IRS which is your foremost business priority.
Keep Updating Your Financial Statement & Business Records
If you keep updating all your financial statements and business records on a regular basis, you can easily get a much vivid picture of precisely where you stand. You may then choose your priorities appropriately.
Avoid Mixing Business Funds and Personal Funds
When businesses are encountering financial issues, they often tend to use personal loans, personal credit cards, or other personal assets to help the business stay afloat. Michael Giannulis believes that if you co-mingle business funds and personal funds, it is possible that creditors will consider ‘piercing the veil’ that is present between your business and you. We understand that ‘piercing the veil’ could be the strategy of the creditor for collecting all the outstanding debts of an LLC or Limited Liability Company or any other sort of business structure that has been designed to protect the business owners from being held personally liable.
Do Not Think of Hiding Your Debts
If you are trying to obtain fresh new income via outside loans to your business, you should focus on being completely honest regarding the sorry condition of your business. Hiding financial circumstances and debts could be equivalent to fraud. You may even encounter criminal charges apart from being held personally liable.
If you are thinking of closing down your organization, it is a possibility because of financial distress. However, you cannot just walk away as that could mean disastrous implications. There are customers, employees, creditors, and several other stakeholders involved. It is best to discuss your business scenario and financial issues with a qualified and licensed business attorney who can guide you every step of the way in the right direction.