Closing a California S Corp, No Sales in Prior Tax Year

[MJLachica]

My question involves business law in the state of: California

OK, opened the corp in 03. My husband and I are the only stock holders and board members. Real Estate and Mortgage biz. Biz started tanking in 05. We personally guaranteed all debts. Sold and mortgaged everything (personally) in order to try to ride out the economic storm. We loaned (husband and I) the company and are still owed at least 200K. We have lost everything personally in the process. Biz account has $22.00. No transactions for the entire year of 09. Took a 13K loss for 08. Personal bank account has $250.00

I want to close the business and be done. I am ok with the personal guarantee of the debts as I am going to have to go personal BK any way.

Doing a business BK seems redundant.

Here are my questions

1)Can I amend my 08 tax return to be my Final return?

2) Since the biz owes us so much money, we are the largest creditor BY FAR can we repossess the small amount of furniture and computers (under 2K) as partial payment? There by having NO assets in the business.

3) Do we REALLY need to file a Biz BK? Seems like an unnecessary expense and since everything is personally guaranteed anyway, it all rolls down hill.

Any words of wisdom will be appreciated.

[SChinFChin]

My question involves business law in the state of: California

OK, opened the corp in 03. My husband and I are the only stock holders and board members. Real Estate and Mortgage biz. Biz started tanking in 05. We personally guaranteed all debts. Sold and mortgaged everything (personally) in order to try to ride out the economic storm. We loaned (husband and I) the company and are still owed at least 200K. We have lost everything personally in the process. Biz account has $22.00. No transactions for the entire year of 09. Took a 13K loss for 08. Personal bank account has $250.00

I want to close the business and be done. I am ok with the personal guarantee of the debts as I am going to have to go personal BK any way.

Doing a business BK seems redundant.

Here are my questions

1)Can I amend my 08 tax return to be my Final return?

2) Since the biz owes us so much money, we are the largest creditor BY FAR can we repossess the small amount of furniture and computers (under 2K) as partial payment? There by having NO assets in the business.

3) Do we REALLY need to file a Biz BK? Seems like an unnecessary expense and since everything is personally guaranteed anyway, it all rolls down hill.

Any words of wisdom will be appreciated.

I went through I of these myself, and NO, there is no need to file biz bankruptcy particularly if you guaranteed all the loans personally.

I consulted an attorney, and he also advised against "officially dissolving" a corporate entity for the reaon that when you officially dissolve it, you make a declaration that you are not aware of any outstanding debts, lawsuits etc. and in your case, there are outstanding debts. In my case, there was an outstanding "threatened lawsuit" due to an accident.

My attorney advised that after a period of time, and in NY State, the state will administratively dissolve it if I don't file my annual statements, and pay the filing fees. The advantage to the administative dissolution is that I make no declarations compared to when I file paperwork to dissolve it myself where someone later can come after me for making false statements, and sue me personally.

The procedure from what I understand it, is similar in CA.

He further advised that the other advantage of administrative dissolution is if someone does sue me personally later, after dissolution, I can resurrect the corp by paying the back fees, do the annual filings retroactively, and then tell people to sue the corp, not me.

Presumably, if you dropped over $200K into the business, you should have operating losses that large or larger, or capital losses, that you carry onto your personal tax returns as tax loss carry forwards, so if you go into other businesses, make a profit, or get employed, you can start using the operating losses. This is another issue entirely, an issue that you have to talk to your CPA about.

And if the $200K becomes a capital loss, you can engage in other businesses, or go into partnership with someone where the loss can be used. At the height of the real estate market in 2007, I manged to take some profits in the real estate bubble, and apply the operating losses to that, resulting in one year getting a tax credit refund.

Again, you'll have to talk to a financial advisor. However, filing biz bankruptcy would put a black mark on you, particularly if you want to move on to other endeavors.

As to amending the 2008 returns, personally, I would file a 2009 return with no activity and declare it the final return. There may be some issues on the state level where you might get stuck with fees if you operated in 2009. Here in NY, there are minimum franchise taxes due for companies that loss money.

As to the furniture under 2K, I wouldn't worry about it. If you want to stay out of trouble though, a private company I worked for who went bankrupt called in some specialists who specialize in taking furnitute and computers of companies in there situations. One compnay offered a pittance, and the other two wanted us to pay them to haul the stuff away.

When they decided to go with the company to haul the stuff away, they told employees to take what they like, so I got myself about six nice swivel office chairs. There was a beautiful red wood "big shot" desk that cost them $3,000 to buy originally, and they asked me to pay a nominal $50.00 for it, so they won't get in trouble with the trustee if anyone asked, and hire my own truck to haul it away.

I still have that desk.

So if you want to rid yourself of the furniture without someone accusing you of theft, call up some of these places, and even pay them $100.00 to haul it away, so creditors can't accuse you later of looting the company.

[Bubba Jimmy]

Disolve the corporation and stop paying the minimum franchise tax, which is $800 a year. I wouldn't pay $800 a year for nothing. You're personally on the hook for the debts. Just send a letter to each creditor letting them know that you are assuming the debt and then close the coroporation.

[SChinFChin]

Disolve the corporation and stop paying the minimum franchise tax, which is $800 a year. I wouldn't pay $800 a year for nothing. You're personally on the hook for the debts. Just send a letter to each creditor letting them know that you are assuming the debt and then close the coroporation.

In general, many small business owners guaranty some debts, and does not guaranty many others.

See CA code on Corporate dissolution:

http://www.leginfo.ca.gov/cgi-bin/di...file=1900-1907

Refer to 1900.5, paragraphs 2 and 3. As in most states, if a Corp is formally dissolved, with a mix of guaranteed and "non guaranteed" debts outstanding, debts would have to be listed per paragraph 2, and the person or entity who would be responsible for the debts thereafter would have to be named in the dissolution declaration, per paragraph 3.

Translation: You have agreed to guaranty all the debts, even those you signed no guaranties.

In my case, there is a threatened lawsuit for $1,000,000. Under similar NY laws, if I file dissolution documents, I have agreed to personally cover the potential liability if the "dissolved corporation" loses the case.

Having said that, if the OP guaranteed every last debt of the company, unlike most others, then they can list the outstanding debts in the dissolution declaration, and then list the name, or the names of the persons responsible thereafter, in accordance with the requirements under 1900.5 paragraph 3.

In my case, I filed my final tax returns on the Federal and State levels. I did not file formal dissolution documents under my attorney's advice, to retain my liability cover.

[MJLachica]

WOW!!! I can not thank you enough. The information you have provided has been so much help and has given me so much perspective and stress relief.... I can not believe how much detail and effort you have put into helping me with this question. This is a great website. I am so glad I was able to find it.