Many businesses, including corporations even though they potentially can exist forever, will eventually reach a point at which their existence or their participants’ involvement, as originally constituted, will end. This can occur in several ways. A business can be sold to new owners, it can be voluntarily wound up and terminated, or it can end in bankruptcy.
Depending on how the business is organized and its legal status, and that of the purchaser and seller, its sale can be very complex. Any sales will have to comply with the strictures of federal antitrust laws and various state laws governing permits and licenses, as well as state antitrust laws. In addition, federal and state securities and tax laws may also come into play.
Other than the obvious questions of what exactly is to be sold (assets only or assets and liabilities) and at what “price," numerous considerations come into play, including non-competition and nondisclosure agreements, employment agreements and compensation for retaining key employees, and indemnification.
Careful planning from the outset is essential, so it is important to seek legal counsel as soon as the possibility of a sale arises. McCormick and Boyd Law Firm is ready to work with its business clients and their tax and financial advisors in making sure that any purchase and sale of a business is done properly and expeditiously.
Some businesses reach a point at which its owners decide that it is simply time to close up shop. In that event, the business must be “wound up” in compliance with the business entity laws of the state in which it was formed and perhaps even the laws of any other states in which it is licensed to do business. In Texas, helpful information can be obtained from the Secretary of State and the Comptroller of Public Accounts. Here are their web addresses:
As with the sale of a business, careful planning is important and close collaboration between your attorneys, tax advisors and financial advisors is essential.
Termination or rearrangement of a business through a bankruptcy is governed by the federal bankruptcy laws and regulations and is done only in the specially constituted federal bankruptcy courts. Depending on the circumstances, a business can seek either a reorganization of the business (called a “Chapter 11” bankruptcy) or a liquidation of the business (called a “Chapter 7” bankruptcy).
A bankruptcy may be either voluntary (initiated by the debtor) or involuntary (initiated by creditors). An involuntary bankruptcy may only be filed by a person, estate, trust, governmental unit, or United States trustee who has a claim against the debtor. Certain types of debtors are exempt from involuntary bankruptcy and only noncontingent claims or claims whose amounts or liability are not subject to a good faith dispute can be used to support an involuntary bankruptcy petition. Therefore, whether a particular claimant or creditor is eligible to file an involuntary case will depend on the particular circumstances and legal counsel must be sought before attempting such action.
Advice of an attorney who specializes in bankruptcy practice is absolutely essential regardless of which type of procedure is chosen and this advice must be sought as early as possible to avoid certain pitfalls for the unwary. For example, certain kinds of transactions can be voided if done within a certain period of time before the bankruptcy petition is filed and they meet the criteria for preferential or fraudulent transfers.
McCormick and Boyd Law Firm stands ready to assist its clients in presenting their claims against debtors who have filed for bankruptcy.