Full question:
I need to shut down my S Corp. There is only one other shareholder and he is in agreement. The company has around 300k in outstanding debt and we are no longer generating income. What is the best way to protect ourselves from litigation in regards to these debtors? Dissolve the Corp? Chapter 11? Chapter 7? Personal Chapter 7?
- Category: Corporations
- Date:
- State: National
Answer:
Generally, an officer of a corporation is not personally liable for the corporation's debts, provided they acted within their authority. If you choose to dissolve the corporation, you may not need to worry about the remaining debts, as the corporation will no longer be a legal entity for creditors to pursue.
Alternatively, you could consider filing for bankruptcy. This could provide protections under the Bankruptcy Code, such as an automatic stay that halts lawsuits or collection actions against the company. A Chapter 11 bankruptcy allows for reorganization, which may be beneficial if the corporation could potentially operate profitably in the future after discharging certain debts. However, the costs associated with bankruptcy might make voluntary dissolution a more attractive option.
In a Chapter 7 bankruptcy, the corporation's assets are liquidated, and the proceeds are distributed among creditors. After this process, the corporation ceases to exist, and there is no need to forgive any remaining debts.
Filing for bankruptcy also automatically suspends all existing legal actions, which can help delay foreclosure or judgments. However, creditors with secured debts can petition the court to lift the automatic stay after a certain period.
It's advisable to consult with a local attorney to review your specific situation and documents.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.