Closing your business can be a tough decision, but sometimes it’s necessary. Whether you’re retiring, moving on to a new opportunity, or your business isn’t as successful as you had hoped, it’s important to close your business properly. In Arizona, you have the option to do this through an “out-of-court workout”. This can be a simpler and less expensive alternative to filing for bankruptcy. Read on to find out how to do it yourself in compliance with the Arizona laws.
What is an Out-of-Court Workout?
An out-of-court workout is a way to resolve financial issues with creditors without going through the formal bankruptcy process. It’s like negotiating a deal outside of court to pay off your debts in a way that’s manageable for you. This can involve negotiating new payment terms, settling debts for less than what’s owed, or a combination of both. The goal is to come to an agreement that allows you to close your business in an orderly fashion while satisfying your creditors as much as possible.
Steps to Closing Your Business with an Out-of-Court Workout
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Assess Your Financial Situation
Before you can negotiate with creditors, you need to have a clear understanding of your financial situation. This means listing all your assets and liabilities, including outstanding loans, unpaid bills, and other debts. Also, consider your assets, like equipment, inventory, and cash. You need to know where you stand financially when negotiating with creditors.
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Communicate with Creditors
Communication is key. Reach out to your creditors and explain your situation. Be honest about your inability to continue operating and your desire to resolve your debts. Most creditors prefer to work out a deal rather than risk getting nothing if the business files for bankruptcy.
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Negotiate Terms
This is the heart of the out-of-court workout. You can propose different solutions, such as extended payment plans, reduced balances, or lump-sum settlements for less than what’s owed. For example, if you owe $10,000 to a supplier, you might negotiate to pay $6,000 upfront to settle the debt. It’s essential to be reasonable and transparent during these negotiations. Creditors are more likely to agree if they see you’re making a good-faith effort.
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Document the Agreement
Once you’ve reached an agreement, put everything in writing. This should include the terms of the settlement, payment schedules, and any other relevant details. Both parties should sign the agreement. This important document protects both you and the creditor.
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Liquidate Assets
If you need to raise funds to pay off your debts, you might have to sell your business assets. This can include equipment, inventory, or even intellectual property. In Arizona, the Uniform Commercial Code (UCC) governs the sale of business assets. It’s important to follow these rules to ensure the sale is legally binding and fair.
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Dissolve the Business
After settling with creditors and liquidating assets, you must dissolve your business legally. In Arizona, this involves filing Articles of Dissolution with the Arizona Corporation Commission (ACC). According to Arizona Revised Statutes § 10-1403, the filing must include details such as the corporation’s name, the date of the meeting at which dissolution was authorized, and a statement that the dissolution was approved by the shareholders.
Example Scenario
Imagine you own a small retail shop in Phoenix, Arizona. Due to increased competition and a decline in sales, you can no longer keep up with rent and supplier payments. You owe $5,000 in rent and $10,000 to a supplier. After assessing your finances, you realize you can only afford to pay $7,000 in total.
Hence, you contact your landlord and supplier to explain your situation. Then, You negotiate with your supplier to settle the $10,000 debt for a $5,000 lump sum. You also negotiate with your landlord to forgive two months of rent in exchange for vacating the property quickly and leaving it in good condition. Afterward, you sell off your remaining inventory and store fixtures to raise the $7,000 needed to settle your debts. Finally, you file the necessary paperwork with the ACC to dissolve your business.
Relevant Arizona Laws
Arizona law has specific statutes that govern business dissolution and creditor rights. Some key statutes include:
- Arizona Revised Statutes § 10-1403: This statute outlines the process for dissolving a corporation in Arizona. It specifies the requirements for filing Articles of Dissolution with the ACC.
- Arizona Uniform Commercial Code (UCC): The UCC governs the sale of assets, ensuring that transactions are fair and legally binding.
Closing a business through an out-of-court workout can be a viable option if you’re facing financial difficulties. It allows you to resolve debts and close your business without the complexities of bankruptcy. By following these steps and examples, you can ensure a thorough and compliant process for closing your business in Arizona and handling an out-of-court workout with creditors.
While it’s not an easy journey, taking the right steps in closing your business responsibly will help you avoid future complications.