What are the key things to consider when closing a business?

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There are many reasons why you may have decided that it’s time to close down your business. But how difficult is it and what are the key things to remember? Asks Ruth Chornolutskyy, corporate Solicitor, Lester Aldridge in the latest UK200Group blog post.

Ruth Chornolutskyy

If a business is in financial difficulty, decision-makers should ensure they do not allow the business to trade on like this for too long. They should take care in relation to selling assets which would need to be for value, subject to taking professional valuation advice.

Ensure those owed money (but not holding security) are put on an equal footing with each other and no one should be repaid ahead of anyone else. Getting this wrong can lead to the personal liability of directors as well as potential disqualification from acting as a director in the future. Certain transactions will become subject to scrutiny if the company ends up subject to a formal insolvency procedure.

Directors who take advice early on reduce the risk of being personally liable and take steps to minimise losses to creditors. An insolvency practitioner can assist to find the best option for winding down the business. They will communicate with creditors and suppliers about the closure or sale. This includes repayment of sums owing or return of goods (subject to retention of title claims). Business decision makers should cooperate with the insolvency practitioner in the process.

Take professional advice

Legal, tax and accounting advice should also be sought from specialists as this may otherwise affect the way in which the business is to be closed.

In preparing to close a business, take care before selling off parts of the business and assets. A solicitor will be able to advise you of the best route to doing this.

Assets of the business which are not being sold may need to be distributed or disposed of. The manner in which this is to be carried out will always depend on the circumstances and advice should be sought in all cases.

Documentation may be required to protect IP, know-how or trade secrets of the business.

It may not be possible to immediately terminate the contracts of the business with third parties. A solicitor may be required to review the contracts and advise you on your options. This includes how to terminate the contract correctly (if termination is possible under the contract terms).

Top tips for selling a business

1) Consult with the right professional advisors early on. It’s likely to impact the way the transaction is structured and the strategy for achieving the end result.

2) Use a lawyer with experience in business advisory and commercial matters to assist with making plans. They can draft the documentation needed to ensure you can sell the business with minimal risk, protect any aspects of the business with value to you and try to get a clean break.

3) Plan as far ahead as workable. Closing a business can take time, so leave enough time for all aspects of the process to be dealt with properly.

If you would like more information closing or selling a business, please contact a member of Lester Aldridge’s experienced corporate and commercial team.

Tags: UK200

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