One of the crucial frequent inquiries I get are from my Los Angeles Space small enterprise house owners desirous to file chapter “on” their companies.
“I must 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 beneath 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 on., then you could study the non-public/particular person chapter choices of the enterprise proprietor(s) as a result of there isn’t any separate enterprise entity.
Who Owes The Money owed On Your Enterprise?
Let’s say you’ve tried the whole lot and you’ve got determined to shut the doorways of your small enterprise (assuming your corporation location has doorways). You might have stopped or will cease operations and need to stroll away.
If your corporation is a separate authorized entity, reminiscent of an organization, LLC, or LLP, then its collectors have recourse towards the belongings of the enterprise.
And, when you signed a private assure on any of the enterprise money owed, then in addition they have recourse towards you (the proprietor) individually.
Furthermore, some money owed may change 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 may 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 purpose, this idea may be very tough for a lot of to grasp.
One purpose that no discharge is entered for companies in Chapter 7 is that it could be fully pointless.
If an organization is now 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 might be helpful in these instances, when the small enterprise has a whole lot of belongings.
This happens the place a brand new entity has been shaped to run basically the identical enterprise, and the brand new house owners want some belongings from the “previous” company to run the brand new one (for instance, equipment, or software program, the model identify, or no matter).
In that case, a Chapter 7 submitting helps defend the house owners from legal responsibility because the Chapter 7 Trustee can promote the belongings to the brand new enterprise (after a traditional bidding course of). Then the house owners 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 desires to remain in enterprise and reorganize.
It may also be used to liquidate belongings and management the sale greater than can be attainable in a Chapter 7.
Chapter 11 to remain in enterprise requires proposing some type of reimbursement plan.
Many guidelines should be adopted to get a Plan accepted, together with acquiring a sure variety of votes from collectors, which might be tough.
The brand new SubChapter V Chapter 11 permits a fee plan based mostly on projected disposable earnings, usually over a 5 12 months interval, and might 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 any separateness between your corporation and your self individually. You might be one and the identical.
So, on this case, submitting a chapter “on your corporation” means submitting a private chapter case.
Submitting a private chapter may be needed when you have private ensures or different legal responsibility on money owed from an organization** which you’re unable to pay.
Private chapter might be filed beneath Chapter 7, 11, or 13, relying on the info and circumstances of your case (quantity and sort of debt, worth of belongings, earnings and bills, and so on.).
A session with a certified and skilled chapter lawyer is important to find out whether or not you must file a chapter and, if that’s the case, which Chapter can be finest.
**After 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.