Equipment Appraisal Blog | Understanding Machinery Appraisals

What Happens in a Business Dissolution or Divorce?

Posted by Equipment Appraisal Services on Mon, Aug 31, 2015 @ 10:00 AM


Whether it's retirement or a partner leaving a business, dissolution can be a very confusing process. How do you get a fair value from the assets and, in the case of a partner leaving, decide on a fair price for the leaving partner's share? Let's take a good look at the dissolution process and how having equipment appraisals completed can help make that process go more easily for all concerned.

What happens in a dissolution?

Though dissolution can be very different based on your company's structure and policies, they usually follow the same basic steps:

  1. The decision to close or leave the company is made. For a sole proprietor, this can be as simple as making a decision, but in a partnership, LLC or corporation, it can be much more complicated. A partnership may require a meeting to discuss how the leaving partner needs to hand off existing clients and be compensated for their part of the company, typically using equipment appraisers to ensure that the machine valuation reflects the proper values. An LLC or corporation often requires a meeting with the shareholders to approve a resolution to dissolve, usually by following the procedure outlined in the bylaws.
  2. File dissolution forms with the state. Depending on your state's requirements, this step may either fall at this point or after taxes have been taken care of. Usually filed as a Certificate of Dissolution, talking to your state's Secretary of State office is a good starting point to gather details on what needs to be done.
  3. Cancel any licenses, permits and fictitious names.  If you've needed to pick up any regulatory documentation, you'll want to cancel them, because you can be charged for renewals if you fail to cancel these items. Cancelling a fictitious name, such as a DBA, protects you from liability if someone else does business under that name after you've dissolved your business.
  4. File taxes.  You'll have local, state and federal taxes to file. Many states require proof that your tax burden has been finished before they'll dissolve your business, often in the form of a tax clearance of verification of good standing. Don't forget payroll deductions and sales tax returns while you're working on closing taxes.
  5. Settle creditors' claims. Any companies or agencies you owe money to should be settled prior to the dissolution. If needs be, this can be accomplished by selling some assets following a machinery and equipment appraisal by a qualified equipment appraiser.
  6. Distribute any remaining assets.  This can be the hardest one, especially if the company doesn't close, such as in a divorce or when a partner leaves, and is the best time to have a machinery valuation or machine appraisal performed. Because the company is being continued after the change, the person retaining the business will want a low equipment value because they must buy out the other partner to continue, while the individual who is leaving wants higher equipment values as they are being bought out. Bringing in a qualified machine appraiser accredited by the American Society of Appraisers using the Uniform Standards of Professional Appraisal Practice can often help solve this dilemma, because they are required to appraise the remaining assets at a fair market value that doesn't favor one side or the other, though if all parties agree, a liquidation appraisal can be used.

Closing or leaving a business through dissolution can be a difficult time for all involved, but by following the steps one at a time and using the services of a professional, such as your registered agent or a qualified appraiser, it can be much easier. Your Secretary of State, the IRS and the Small Business Administration are other alternatives for information on dissolving your business.

Tags: Equipment Appraisal, Divorce, dissolution