What’s the Best Way to Get Rid of an Unused Business Structure?

Do you have an old business structure that you aren’t using? Perhaps the business that you operated through it has been sold, or you’ve moved over to a different structure. Maybe it held assets that you’ve since liquidated? Maybe you set one up for a business prospect that never did come about. What do you do with them?

There are three ways to get rid of a business structure. You can:

  1. Sell it to someone else.
  2. Formally Dissolve it; or
  3. Do nothing, and allow a state to revoke the structure.

The best choice for you will depend on several different factors.

For example, is the business costing you money to maintain? If it is, then I will almost always suggest to a client that they let it go, unless it makes economic sense to keep it around. Take California and Massachusetts, for example. In each state, the renewal costs alone are $800 and $500 per year, respectively. That is just the cost to renew the business at the Secretary of State level. If you need a resident agent, or a business license, or have to file a yearly tax return, the costs can go up from there. If you aren’t using the business, and don’t have a real reason for hanging onto it, why take on those costs every year, especially without any income to offset them?

I also like to use this option in a situation in states that don’t have annual report filings. We see this with LLCs in particular – they go until someone pulls the plug. Here, a formal dissolution stops the clock, for liability, taxes, etc.

Selling a business can work, but be prepared for resistance from some buyers. The problem with selling a business shell is undisclosed debts or liabilities. No one wants to buy a business shell, put in a bunch of money, and then find old creditors coming out of woodwork to try and collect on claims that belong to the previous owners. There are a lot of buyers who won’t take on a ‘used’ company for that reason. On the other hand, if you have established a credit line for the business, and especially the kind of credit line that DOESN’T depend on your personal guarantee, you could have an attractive opportunity for someone, especially if they are seeking SBA financing or something that requires the business to have been around for 2+ years.

The third option is letting a business dissolve, either by asking the resident agent to resign, or by failing to file Annual Reports with the state. Many states have a procedure available that gives them the ability to revoke a business’s Articles after it has been non-compliant for a certain period of time.

This is an option I also like to use in the right circumstances. Allowing the entity to be dissolved by the state makes sure that no liability for any business debts go back to the officers/directors. In some states, a voluntary dissolution requires the management or ownership to acknowledge and agree to pay any outstanding debt of the company. Of course, if there is no debt or liability hiding anywhere, then there isn’t really a problem.

This is also a cheap option – you won’t be paying resident agent fees or dissolution fees! But make sure you and your resident agent are on the same page, if you go this option. Most resident agent companies out consider their service active until you specifically take steps to cancel it. In some cases, non-payment will result in their automatic resignation, but in other cases, it could wind up with the account going to collection.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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