Small business Archives - Page 3 of 3 - Northern California Bankruptcy Lawyer

What Asset of Failed Business Is Most Valuable?

Usually I rant about mistakes clients made when they incorporated their ongoing business.

Come hard times for the business, those mistakes eat into our options for the owners survival when the corporation goes down.

Invariably,

the vendor accounts remain in the name of the proprietor,
the stock may not have been issued, and
it’s unclear whether there was an explicit transfer of the assets to the corporation.

If the business is beyond saving, I want the incorporated business to go out of business. The business can shut down either through a bankruptcy filing or just by closing the door.

The goal is to let the corporation die without killing the owner in the process.

That requires as much distinction between the assets and debts of the business and the assets and debts of the business owner as possible.

Yet when the incorporation was sloppily done, that line between owner and business may be murky.

Owner still needs to eat

The challenge when a small business fails is making sure that the owner has a way to make a living after the doors close. [Read more…]

The Easiest Business Loan In Town

By Cathy Moran

Running a small business is hard work.

Cash flow is tight; time is in short supply.

When there’s just not enough in the bank to cover payroll, the easiest loan in town is from the Bank of Uncle Sam.

There’s no application, no review, no waiting.

You just give employees their checks, net of the amounts withheld. You can repay the withheld amounts when cash flow is better, you tell yourself.

Up until now, that manoeuvre was costly and the financial consequences unavoidable. Now, in California, it’s also criminal. [Read more…]

Collections Is A Boogie Man For Businesses Too

By Cathy Moran

“Being sent to collections” is a boogie man for businesses as well as for individuals, I learned this week.

I was counseling a small business with lots of vendor debt.

We were looking for a strategy that could keep them in business.

When I suggested that management sort their payables into vendors they needed and wanted to keep, and those they could live without and wouldn’t pay going forward, I heard the familiar refrain: “but they’ll send us to collection!”

So?

Sent to collections

Where is “collections”? What is so bad about a corporation being there? It isn’t painful… [Read more…]

Business credit card & bankruptcy

By Cathy Moran

Credit cards the business owner thinks of and uses for business may not be a debt of the business at all.

Andy Miofsky addressed the fact that where the shareholder has guaranteed the debt of the corporation, the shareholder’s discharge in bankruptcy doesn’t relieve the corporation of liability.

Lots of owners of incorporated small businesses have funded business operations on credit cards. The card may have the business name on the plastic, but often the corporation is not contractually obligated on the debt.

Where that is the case, the discharge of the shareholder’s liability on the card may have no impact at all on the corporation.

The difficulty in these cases is getting possession of the credit application and determining precisely who is liable.

Preserving a Small Business through Bankruptcy

By Cathy Moran

Chip Parker and I have been writing about bankruptcy issues for the self employed over on the BankruptcyLawNetwork.
Chip pointed out that the bankruptcy of the shareholder does not protect the operations of a corporation that the debtor owns, since the corporation is not in bankruptcy, the shareholder is.
The flip side of that proposition is that since the incorporated business is not in bankruptcy, it can usually proceed to operate through the bankruptcy of its shareholder. After all, it is a separate entity, distinct from the owner of the stock.

When a small business is a proprietorship, the assets belong to the owner and are part of the owner’s bankruptcy estate when the owner files for debt relief. The trustee may want the business to stop operating 1) so it does not incur more operating debts; 2) so that the trustee is not liable for any tort claims that arise after the commencement of the bankruptcy; and 3) so the assets can be preserved and accounted for.
I have frequently advised clients with an operating business or professional practice that they want to continue to run post bankruptcy to incorporate before filing. In that manner, they draw a circle around the business assets and create a separate legal “person” who is not in bankruptcy. It shields the trustee from the concerns set out above and allows the debtor to continue to work.
If the stock in the corporation has non exempt value on the open market, the debtor may buy the stock from the trustee. Most small businesses however have little value if the owner were to stop working in the business. Trustees frequently abandon such assets as having insignificant value for creditors.

Owner still needs to eat

Sent to collections

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