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What should I do with an inactive business?

By: Bill Wortman

 

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What should I do with an inactive business? I started a technology company in 1994, and it was a very successful small business. In 2004, I took a full-time position working for one of my clients. Since then, we have continued filing returns, but my focus on my new job has not allowed me to spend adequate time on my own business. Should I try to sell, donate, or close this corporation?

 

Answer: If you do not plan to focus any efforts on the technology company’s business and it is not generating any residual or ongoing income, then we would agree with you that you should dispose of this company to eliminate the tax and regulatory filings and other administrative costs of maintaining the inactive corporation. The best approach to disposing of the corporation and business will depend on the whether the business is still active, the type of business assets (equipment, software, customer lists, intellectual properties, etc), whether it has outstanding business debts, whether it has any employees, and other factors:

1. Sell. Generally speaking, the sale of an active business will generate more value for the owner than closing the business and selling the assets. If the technology business is still active and has ongoing viability, then a sale (to an outside party or employee) would be an option. If you do not have the time to market the business yourself, then you can consider using a professional business broker to help market and sell the business. You can review other business sale considerations at the following websites:

2. Donate. It may be possible to close the business and donate the business equipment to a school or other charitable organization(s). Another form of donation would be to gift the business to an employee. If the business has little value to you but an employee(s) wants to keep it active, then you could consider gifting the corporation stock to the employee. Gifts and donations have IRS rules and regulations that you would need to consider with your tax advisor but can review at the following websites:

3. Close. If the business is inactive, then dissolving the corporation may be your best option. Statutory and ill-planned corporate dissolutions can cause the business obligations to transfer to the business owners and/or officers under certain circumstances; therefore, the safest approach in dissolution is to have all business debts paid or settled before dissolving a business entity. For example, third parties have shown personal wrongful conduct on the part of company owners, officials, or directors and held them personally responsible by piercing the corporate veil. Your business lawyer can assist with corporate dissolution legal and regulatory requirements; however, you can review the following government and legal information, which includes these basic considerations:
1.    Corporate Action
2.    Filing with State
3.    Notification to Creditors
4.    Handling Creditors’ Claims
5.    Distribution of Remaining Assets:

Published: September 23, 2013
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