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.
- 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.
Often, the owner’s skills and contacts are best used in the industry in which his corporation has just crashed.
But if the owner takes the corporation’s name, its customer list, or its phone number, there is a danger that the new business operated with those assets could be deemed a continuation of the corporation.
That could spawn lawsuits by the corporation’s unpaid creditors against the owner running a successor business. The more the owner of the failed business tries to lever the assets of the old business, the greater the risk that the debts of the old business follow the assets.
It’s a tricky problem.
When mistake works wonders
But last week, such inattention to the details of incorporation promised to pave the way for the stockholder to walk away from a failed corporation with its most valuable asset, the business phone number.
For, you see, they never transferred the phone account of the proprietorship to the corporation.
My individual client still owned the phone number from before incorporation and should be able to use that number in a new business started from the ashes of the present corporation!
Existing advertising and business cards in circulation will direct customers of the old business to the new business.
If the phone number had been transferred, then we would have been faced with difficult questions of how to sell it to the individual before the corporate bankruptcy and how to value the number such that the transfer wasn’t a fraudulent transfer.
Spared that headache by the ineptitude of the incorporating professional. Yipee!
Image: Geralt & Pixabay