One of the crucial frequent inquiries I get are from my Los Angeles Space small enterprise homeowners desirous to file chapter “on” their companies.
“I have to file chapter as a result of my enterprise is failing”, they inform me.
Nevertheless, it’s not often essential to file chapter for a enterprise that’s not making an attempt to remain in enterprise, if that enterprise is held by a separate entity reminiscent of an organization, LLC, or LLP**.
When To File Chapter For Your Company LLC LLP
Is your small enterprise owned below an organization, or LLC, or LLP, or is it merely a sole proprietorship of yours (e.g. John Doe dba Doe’s Storage)?
If the enterprise is not a separate authorized entity, reminiscent of an organization, LLC, LLP, and so forth., then you have to study the non-public/particular person chapter choices of the enterprise proprietor(s) as a result of there isn’t a separate enterprise entity.
Who Owes The Money owed On Your Enterprise?
Let’s say you’ve tried every little thing and you’ve got determined to shut the doorways of your small enterprise (assuming your online business location has doorways). You have got stopped or will cease operations and need to stroll away.
If your online business is a separate authorized entity, reminiscent of an organization, LLC, or LLP, then its collectors have recourse in opposition to the belongings of the enterprise.
And, if you happen to signed a private assure on any of the enterprise money owed, then in addition they have recourse in opposition to you (the proprietor) individually.
Furthermore, some money owed may additionally turn into your private accountability even within the absence of a private assure. This contains issues just like the belief fund portion of unpaid payroll taxes and gross sales tax obligations.
Even when an organization did get a discharge of money owed in chapter, that might not have an effect on the non-public legal responsibility on any private ensures or different of the above-mentioned obligations.
That’s the reason in most of those instances, it’s a private chapter case that’s wanted; not a company “enterprise chapter”.
When To File Chapter 7 For Firms**
Firms don’t obtain a discharge of money owed in Chapter 7.
For some cause, this idea may be very troublesome for a lot of to know.
One cause that no discharge is entered for companies in Chapter 7 is that it might be fully pointless.
If an organization is not working and going out of enterprise, what profit would there be to discharging its money owed?
If no extra enterprise is to be performed, servicing current money owed is a non-issue.
Nevertheless, there are occasions when a Chapter 7 could be helpful in these instances, when the small enterprise has a variety of belongings.
This happens the place a brand new entity has been shaped to run primarily the identical enterprise, and the brand new homeowners want some belongings from the “outdated” company to run the brand new one (for instance, equipment, or software program, the model title, or no matter).
In that case, a Chapter 7 submitting helps protect the homeowners from legal responsibility because the Chapter 7 Trustee can promote the belongings to the brand new enterprise (after a standard bidding course of). Then the homeowners of the brand new enterprise can’t be accused getting the belongings for lower than honest market worth and it helps take away any successor legal responsibility points.
When To File Chapter 11 For Firms in Los Angeles
Chapter 11 is filed when the small enterprise company needs to remain in enterprise and reorganize.
It may also be used to liquidate belongings and management the sale greater than can be doable in a Chapter 7.
Chapter 11 to remain in enterprise requires proposing some form of reimbursement plan.
Many guidelines have to be adopted to get a Plan permitted, together with acquiring a sure variety of votes from collectors, which could be troublesome.
The brand new SubChapter V Chapter 11 permits a fee plan primarily based on projected disposable earnings, sometimes over a 5 yr interval, and could be achieved even with out collectors having the ability to vote.
To see extra on the Chapter 11 choices, go to my Los Angeles Chapter 11 chapter web page.
When To File Chapter if Your Enterprise is a Sole Proprietorship / DBA
In case your small enterprise is NOT an organization** then there isn’t a separateness between your online business and your self individually. You might be one and the identical.
So, on this case, submitting a chapter “on your online business” means submitting a private chapter case.
Submitting a private chapter may be obligatory when you’ve got private ensures or different legal responsibility on money owed from an organization** which you’re unable to pay.
Private chapter could be filed below Chapter 7, 11, or 13, relying on the details and circumstances of your case (quantity and kind of debt, worth of belongings, earnings and bills, and so forth.).
A session with a certified and skilled chapter legal professional is important to find out whether or not it’s good to file a chapter and, if that’s the case, which Chapter can be finest.
**Once I check with firms I’m together with, for the sake of this text, any non-individual entities reminiscent of LLCs, LLPs, S-Corps, and C-Corps.