A business sale or business closure can be a sad event, a weight off of your shoulders, or a mixture of both. Regardless of how you feel about walking away from a venture you built, remember that it’s not as easy as just cutting off the lights and locking the doors for the last time. To make a clean break from your former business, you need to properly address your business’s creditors. Failure to notify your creditors can result in unnecessary lawsuits, obligations to pay interest and fees, and in-fighting among former business owners.
Properly addressing your creditors in order to limit your liability is often best achieved with the help of a skilled lawyer. At Mallery s.c., our top-level business attorneys mix years of experience, a collaborative spirit, and a personalized approach to protecting the professional and personal legal interests of entrepreneurs.
In this article, we give you a brief summary of how to notify creditors of a business sale or closure and limit your liability.
Notifying Creditors When Closing a Limited Liability Company or Corporation
When you dissolve a limited liability company (LLC) or corporation, you will likely need to send written notices to your creditors about the closure. The format of your notices depends on whether your creditors are known or unknown.
After the effective date of your LLC or corporation’s dissolution, you can limit your liability to known creditors by sending written notices that include:
- A mailing address where each creditor can send their claim;
- A description of what information a creditor must include in their claim;
- A deadline for sending the claim that is no less than 120 days after the date of the notice; and
- A statement that the creditor’s claim is barred if not received by the stated deadline.
Please note that this deadline does not apply to debts that your business incurs after dissolution. Creditors also have 90 days to enforce timely claims that they reject.
To defend yourself against unknown creditors, you can publish notice of your business closure in the newspaper. The newspaper you use must be in general circulation in the county where your principal office is located. If your business doesn’t have a principal office, the newspaper must be in the county where your registered office is located. The notice must include:
- The address where each creditor can mail their claim;
- A description of what information a creditor must include in their claim; and
- A statement that a creditor has two years to start a proceeding to enforce their claim or they could be barred from making a claim.
In addition to posting your notice in its paper publications, a newspaper needs to post your notice to creditors on its website.
Notifying Creditors When Closing a Sole Proprietorship or General Partnership
Under Wisconsin law, there is no specific format or requirement for notifying creditors when a sole proprietorship or general partnership closes. A creditor generally has six years to make a claim for debt repayment from these business entities. It can be tempting to close quietly and wait out the clock. However, it’s usually a best practice (and sometimes a contractual obligation) to provide formal notice.
You can (and sometimes must) notify your creditors of closure by:
- Following the notification terms in any contracts between you and your creditors;
- Sending written correspondence to each creditor about the closure and how to contact your business;
- Publishing a notice in the newspaper;
- Posting notices in relevant trade publications; and
- Posting conspicuous closure notifications on your website and storefronts.
Your attorney can determine which of these notification methods you need to employ to best protect yourself.
If you’re dissolving a general partnership, remember that you must discharge your liabilities and distribute the remaining assets to each partner or interested party. It’s important to handle outstanding partnership debts quickly. This not only prevents issues with your creditors but also prevents partner disputes.
Notifying Creditors of a Business Sale
After getting proper approval from your board of directors, members, shareholders, or partners, you may choose to sell your business. A key component of a successful sale is accurately valuing your business. To accurately value your business, you need to know the amount of not only your assets but also your outstanding debts. The more debts you can discharge before a sale, the better.
You will likely need to reach out to your business creditors individually before a sale to discharge your debts. In many cases, a creditor may be open to settling your debts for less than the full amount. Make sure you get any settlements (and discounts) in writing for your protection and your buyer’s protection.
For whatever debts you can’t discharge before the sale, you can notify your creditors of a change in ownership by written correspondence and or publication. Your buyer will likely have an opinion on how you notify your remaining creditors.
We Are Here to Help
At Mallery s.c., our experienced Wisconsin lawyers can give you the personal attention necessary to close or sell your business in the right way. You even have access to our shareholder-level attorneys. Whatever your specific business needs, we can help you achieve the best possible outcome. Don’t hesitate to reach out for help. You can call us or contact us online.