How do I close a company in Indiana?

I have had a number of clients and referrals from other attorneys that have found that their company, whether it be a C-Corporation, S-Corporation, Professional Corporation or Limited Liability Company (LLC), is no longer viable.  Some clients have decided that it is better to work for another company.   Others have decided to retire and move on with their lives without the stress of running a company.  All of them want to close a company to minimize financial liabilities and maximize any funds that can be paid out to the owners.  Whether the company is going to have significant equity or could possibly be upside down owing more to creditors than what the company is worth they need legal advice to make sure that the company is closed properly.

I.C. 23-1-45-1 et. seq., sets out the procedures for closing a corporation or LLC.  Although each company’s circumstances are different, my recommendation is that companies follow some basic procedures to insure compliance with the law and make sure that when the company closes it is avoiding any future legal issues.

First, a company must look at its current business.  Are there existing contracts that must still be fulfilled or that could be sold to another company?  What are the assets of the company and what might these assets be worth?  What are the liabilities or debts of the company?  How many employees does the company have and what legal requirements might exist for giving them notice or informing the State of Indiana of the company’s intent to close.  Answers to these questions set the frame work for how quickly a company can be closed, or wound down, and what procedures must be followed.

The second step is to hold a Shareholder’s Meeting if the company is a Corporation or a Member’s meeting if the company is a LLC.  Even if there is only one shareholder or member, a “meeting” needs to happen with a Notice of Meeting and Minutes from the meeting.  At this meeting, a review of the corporate books should be performed to make sure that everything is in order, an attorney should be appointed to act as the corporate representative for purposes of the wind up, an accountant should be appointed to handle the final tax responsibilities of the company and a vote to wind up and dissolve the company needs to be included “on the record” of the company.

Next, the company’s attorney should notify its interested stakeholders of the company’s intent to wind down, dissolve and close.  This includes the employees, customers, vendors, creditors, banks, state and local government officials (when necessary) and others that might have an interest in the company’s closing.  These are the people that are routinely affected by the company and who might have claims to assert against the company.  This also allows the company to initiate the wind up process and process final transactions.  Generally, this notice will inform the stakeholders of the anticipated process, timing and provide an opportunity to make sure the company’s assets, contracts, liabilities, loans and debts are up to date and there are no surprise claims that will arise.

The company and its attorney will do a preliminary analysis to determine the likely outcome of the dissolution and liquidation process.  If the company has greater assets than its debts, then the company will begin to process transactions toward a plan to pay the owners of the company their share of the value of the company within the coming months.  If the company will not likely have enough money and assets to pay its creditors, then a discussion about settling debts, personal responsibility for the company debts and corporate bankruptcy will need to occur.  The outcome of this preliminary analysis will govern the next step in the process.

Once a preliminary analysis has been performed, a company must decide who will be in charge and orchestrate the wind up process.  Often this is the attorney who will be responsible for sending out the initial notices, accumulate all assets, sell the assets and determine priority of payment of the company’s debts and liabilities.  Even if a bankruptcy seems necessary, this process can often be handled informally once the preliminary analysis is performed and the company has an idea of what payments will be necessary.  Discussions with creditors may be able to avoid a bankruptcy where there might be greater payment to them than would occur if the Bankruptcy Court and Bankruptcy Trustee expenses become necessary.

As part of the preliminary analysis, the company and its attorney determines if there is a potential for unknown creditors of the company and, if so, a Notice of Dissolution is published in a local newspaper requiring unknown creditors to present their claims and, if those claims are not presented in the time frame required by Indiana law, then any unknown creditors will be prevented from making a claim in the future.

Around this time, Notice of Dissolution for the company is filed with the Indiana Secretary of State’s Office informing the State of Indiana and anyone that seeks the company’s corporate records that the company is dissolving and closing.

When I am acting as the company’s representative for purposes of getting the company closed, I assure stakeholders that transaction authority of the company has been relinquished to my office for the accumulation of assets and liabilities.  This provides some level of comfort that they do not need to go file a lawsuit or take some other action to make sure that they are treated fairly in the process.  Shareholder authority is often transferred by a Shareholder Resolution and Limited Power of Attorney.  Monetary accounts are held in Trust as the process moves forward.  Payments from these monetary accounts will transcend in the following anticipated order per a typical liquidation process:

  1. Final Payroll obligations to employees including payments on any employee contribution accounts with insurance or pursuant to valid Court Wage Withholding Order.
  2. Accountant and attorney fees associated with wind up and dissolution of the corporation or determination of tax obligations of the Corporation.
  3. Payments necessary to secure all assets of the Corporation for liquidation and distribution.
  4. Employee payroll tax obligations.
  5. State of Indiana payment obligations including necessary payments for outstanding worker’s compensation insurance premiums and unemployment contributions through the date employees were discharged from employment.
  6. Payments to secured creditors.
  7. Payments to unsecured creditors on a pro rata basis of any remaining available funds.
  8. Distribution of any remaining funds to Shareholders of the Corporation.

The State of Indiana and Internal Revenue Service are priority creditors of the company for payroll and other tax obligations.  A search of the Indiana Secretary of State’s records will determine if there are any UCC filings that establish the existence of any secured creditors.  The initial letter informing stakeholders of the process will also request that if any person or company believes it is a priority or secured creditor to provide notice of this belief and the basis for a security or priority claim and the amount of the claim.  It also requests any claims, in writing, where a creditor believes that a shareholder or member has any personal liability for a corporate debt be submitted.  Any such claim is reviewed and a written response acknowledging or denying the assertion of a priority, secured or personal responsibility claim is issued.

Prior to release of any funds to either secured or unsecured creditors a final notice is sent to all stakeholders showing the funds accumulated, any payments from these funds (general accounting), the claims of all remaining creditors and the proposed final distribution of funds to remaining creditors.  There is a sixty (60) day time period for creditor objections to this proposed final distribution of funds or to demand the company file a Chapter 7 Bankruptcy proceeding to liquidate and discharge its debts.

Finally, if there are no objections or requests that a Bankruptcy proceeding be filed then final payments are issued according to the final notice. Final tax documents are prepared to close the company and the company’s accounts with banks, vendors and taxing authorities are closed.

As you can see, closing a company is an involved process.  Closing a company the right way will make sure that things are settled and no issues will exist when the company is closed and the owner{s) have moved on to the next stage of his or her life.  There comes a time when many companies run their course and are no longer sustainable and when that time comes, Wischmeyer Law Office will be there to assist you in this emotional and complex process.

 

Jason P. Wischmeyer

317-429-0210

jason@wischmeyerlaw.com

www.wischmeyerlaw.com

www.theindianabankruptcylawyer.com