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Attorney Edward Alkalay writes a regular column for the Conway Daily Sun newspaper entitled "The Legal Corner." His articles address a wide variety of timely legal issues. Click on the titles below to review his past articles.
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The Legal Corner: The Legal Corner: Legal Tips for Struggling Businesses
December 1, 2009
The past year has been one of the most difficult business environments in a long time. Businesses in virtually every area have had to cut back. Some have had to reduce inventory substantially, while others have had to lay off long-time employees. Many businesses have tried to fight through the difficult times, while others have had to close or file for bankruptcy protection. In this article, I will present some legal tips for struggling businesses.
(1) Pay your taxes on time: If you have to cut back, do not do it by failing or even delaying payment of payroll taxes. The IRS can hold you personally liable for a failure to pay payroll taxes (even if your business is an LLC or corporation) and can assess penalties. Moreover, debts to the IRS are not dischargeable in bankruptcy. Do not cut back by failing to pay taxes.
(2) Cut Expenses: When you are struggling to pay bills or meet your payroll, you should immediately look for expenses to cut. Whether the cuts are major or minor are dependent upon your particular situation. However, reducing even small monthly expenses (such as bottled water or subscriptions to magazines or books) can help. When your business is struggling, you should cut all unnecessary expenses.
(3) Collect Money Owed: This seems simple but it is surprising how many businesses have high accounts receivable. If people owe you money, call them. Explain to them that you understand that times are tough, but that you have expenses and bills to pay just like everyone else. Most people want to pay their bills and are willing to set up a payment plan if they are unable to pay the full amount owed. If you call individuals who owe you money, do not harass them. If you do not get a satisfactory response from them, seek out professional advice as to what other legal steps that you may take to collect your money.
(4) Be very cautious about transferring business property. Do not try to hide assets. Creditors often have ways of discovering these assets. Transferring business property improperly could subject you to severe penalties, and possibly even criminal liability for a fraudulent transfer.
(5) Consider returning leased property. If you are in a business where you are leasing equipment or property, you may consider contacting the lessor and explaining your situation. If the lessor knows that you will have no way to pay your lease, and that you may file for bankruptcy, the lessor may allow you to end the lease early. For any leased property that you keep, you will need to continue making payments.
(6) Consider selling your business: If you decide that you no longer want to run your business, you may try to sell it. There are many books and web resources for doing so, such as http://www.sba.gov/smallbusinessplanner/exit/sellyourbusiness/index.html and http://www.nolo.com/legal-encyclopedia/buy-sell-business/.
(7) Consider Bankruptcy: If you want to try and discharge all of your debts, a Chapter 7 filing may be appropriate for your business. If you want to continue running the business, then a Chapter 11 reorganization may be appropriate. A Chapter 13 bankruptcy filing is also “reorganization bankruptcy” but is generally reserved for consumers or sole proprietorships.
In almost every case, it is better to tackle issues affecting a struggling business as early as possible. At best, the business will be saved so that it may become highly profitable when the economy turns around. At worst, you will be well positioned to handle any issues that may arise if the business continues to struggle.
Edward D. Alkalay is a partner at Alkalay & Smillie PLLC and can be reached at (603)447-8994 or firstname.lastname@example.org. (This article conveys general information and should not be relied on for legal advice without further research and/or consultation with an attorney.)
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By: Edward D. Alkalay