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Legal Eagle Esq.
Legal Eagle Esq., Attorney
Category: Business Law
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Experience:  Business / Corporate / Real Estate
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I am closing down my business. It is a corporation. We owe ...

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I am closing down my business. It is a corporation. We owe several vendors money. When is the best time to dissolve it? Right now, we are still open. We receive a few collection notices. If we could not pay this before we close down in a week, what is the due process before a vendor forecloses on you? Thanks.
Hello Eunice-

I'd be happy to help you. First a few questions-

1) What state is the corporation formed in?
2) How much are the outstanding debts?
3) Does the corporation have any assets?
- if no assets, were any assets transferred/ditributed during the past year to any of the shareholder?

I look forward to hearing from you.

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Customer: replied 8 years ago.
Reply to M.A. Torres's Post: Hi-

The corporation is in the State of NY. My estimate of total debt should be around $90,000.00 distributed to several vendors. The max I owe one vendor is $15,000.00. The only asset of the corporation right now are the inventory at the store. At a cost, I have an inventory of about $50,000.00 right now. We were in business for only 15 months. There were no assets distributed among the shareholders.

We will only be around for a week more. We received several phone calls for collection. We could barely pay it the way things are going. What is the due process when they foreclose on you or the sheriff will come to close the business?
Well you are dealing with a mutlitude of issues. First and foremost, you should not dissolve the corporation as doing so will bring upon liability to the dissolving shareholders under the theory of successor liability. Before even considering a dissolution the issue of the liabilities should be dealt with.

Typically, a store is not foreclosed (this occurs in real estate when the borrower fails to make the payments to the lender). If your vendors/creditors have a secured interest in the inventory then they would come and take possession of their respective inventory pursuant to the terms of the agreement entered into with the respective vendor/creditor. Typically this is not the case for inventory but may be for furniture, fixtures and equipment.

Can you please provide me with a bit more information please:

1) Did the corporation enter into all the agreements to purchase with the vendors/creditors (i.e. between Corporation as buyer and vendor as supplier)
- what I want to be clear of is whether any purchases from the vendor were done in the shareholder name individually;
2) Assuming all agreements were entered into with the corporation (and not any individual shareholders), did any of the shareholders sign any personal guarantees?
3) Is there a lease involved?
- if so was the lease entered into by the corporation as tenant or was it entered into by any individual shareholders?

I look forward to hearing from you.
Customer: replied 8 years ago.
Reply to M.A. Torres's Post: 1. It is the corporation that entered into the agreement. For all of them, we do not sign any contract. We work by purchase orders. No, all of the purchases are done through the corp. not in any of the shareholder`s name.

2.There was not any personal guarantees on my vendor.

3. We settled the lease with the landlord. The landlord is releasing us from the lease even though we breach it. She gave us a Surrender Agreement Form yesterday to sign to just turnover the key. In fact, despite of this she is also returning our security deposit, which is unusual.

The only personal guarantee that I have is the note from the former owner. He also offered a certain amount of settlement which we are thinking through.

I think our only concern now are the collection notices we are getting. We can only be open for a week more.
Well the corporation will have to deal with the debts prior to dissolving. One way to deal with them is to try and negotiate with the creditors in the same fashion that you have done with the other creditors (i.e. the former owner and the landlord).

If the other creditors do not want to neogitiate or otherwise take some of the inventory back as partial payment for the debt then you will have to consider having the corporation file for bankruptcy thereby working to discharge the remaining obligations prior to dissolving the company.
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