Whether you’re looking to retire or begin a new business venture, you may be in the situation where you need to close an existing venture. It may seem easy to just walk away, however, there are a variety of legal requirements that may make the process seem daunting at first. Here are a few important factors to keep in mind when closing your business.

Agree to Close the Business

Some businesses may need to formally decide to close the business. This is dependent on the business type and will vary whether it is a sole proprietorship or another business type. LLCs and corporations, in this case, follow the same guidelines.

Sole Proprietorships

Sole proprietors are allowed to make the decision to close their business on their own. Owners of a sole proprietorship can simply follow along with the necessary steps for business dissolution.

LLCs and Corporations

Voluntary dissolution of an LLC or corporation has more rules and regulations than a sole proprietorship. These rules are typically found in a company’s formational documents. If you own an LLC, you are covered under North Carolina’s LLC Act for an alternative route. So long as there is unanimous consent among all LLC members, there is no need to follow the procedures outlined in the formational documents. Either way, this decision requires written documentation to be valid.

File Dissolution Documents

In-State Registration

Businesses registered in North Carolina will need to submit the required forms in order to proceed with the dissolution. If the company does not have any shareholders, they can file Articles of Dissolution Prior to the Issuance of Shares. Companies with shareholders, on the other hand, must file Articles of Dissolution by Board of Directors and Shareholders.

Without legally dissolving your business, you may have to pay additional taxes and fees associated with filing requirements. As such, filling out the necessary paperwork is vital for a smooth dissolution process.

Out-of-State Registration

If your business is also registered in other states, you will need to follow those states’ regulations in order to close your business. Without this process, you may continue to incur fees and taxes from these states. Be sure to look up each state and fill out their required forms.

Cancel Any Business-Related Accounts

When closing a business, you’ll need to close anything related to the business as well. This includes registered names, permits, licenses, and so on. You will also need to send a letter to the IRS in order to close your business account.

Resolve Any Outstanding Obligations

Taxes

Taxes are conducted according to the IRS and are done in the calendar year the business is dissolved in. Companies must make final tax payments and list that it is their final return on their tax form. If for some reason there were issues with withholding income, Social Security, and/or Medicare taxes, these issues will need to be resolved as well. Otherwise, the IRS will issue the Trust Fund Recovery Penalty, which charges unpaid taxes plus interest. This is issued in cases of willful tax evasion only, however.

State taxes must also be resolved as well. While you do not need tax clearance to dissolve a business in North Carolina, you will need to pay any outstanding taxes regardless. It is better to complete this process sooner rather than later.

Employee Payments

You will also need to resolve employee payments. This has to be done within a certain timeframe, as The Worker Adjustment and Retraining Notification Act (WARN) requires that companies give a 60-day layoff notice to employees if they have over 100 employees. This has additional stipulations as well, so be sure to consult your business attorney for additional guidance on this. You will also need to give employees their final paycheck.

Notifying Creditors and Claimants

You should also notify creditors and other claimants. While this is not required per North Carolina law, it is recommended. You can either notify them through direct written notice or publish the notice in a newspaper. Either route has certain regulations and procedures, so it is highly recommended that you consult your business attorney on this matter.

Keep Records

Business owners must also keep records following the dissolution. It often takes years before these documents can be safely discarded. The IRS recommends keeping records of employment taxes for at least four years, although you may have to keep the documents longer. Ensure all documents are in a safe and accessible place post-dissolution so you can access them if needed.

Our North Carolina Business Attorneys Can Help

At Wilson Ratledge, we have over 60 years of experience helping business owners from formation all the way through exiting their businesses. We understand that no two businesses are the same, and we treat your situation with the attention and expertise you deserve. Contact us today to schedule a consultation with one of our North Carolina business attorneys to make sure your business dissolution goes according to plan.

There are many reasons business owners choose to sell their businesses. It could be because they want to move to another state or city, they want to retire, sales are down and they don’t have the energy to continue, or they are just looking for a new challenge. 

No matter what reasons you have to sell your business, there are certain things you need to do to maximize your business’ value and have a smooth selling process. Here are the basics on how you should prepare to sell your business.

1. Prepare For The Sale In Advance

Poor preparation can lead to a waste of time and effort. You should start with your exit planning 18-24 months ahead of when you’d like the sale to close. Preparing for the sale earlier can improve your financial records and improve the business structure. Such improvements will make the transition easy for the buyer and potentially increase your valuation. Here are a few things you should do as you prepare your business for sale:

• Increase Profitability – Investors want to buy a profitable business – identifying unnecessary costs and improving efficiency will make the business more valuable and attractive to buyers.
• Update Processes – You’ll put buyers at ease when you create and document processes that will enable the business to function without you being involved. Think of the places you’re involved in the day-to-day operations of the business and document how it could run if someone were to step into your role.
• Keep Your Team Happy – No investor will want to deal with businesses with high employee turnover and uncertainty. Keeping your team engaged and focused on the goal during the acquisition process is critical to a successful transaction.

2. Identify Tangible And Intangible Assets

As the date of the sale draws near, you should list all the physical assets, which include inventory, equipment, fixtures, and furnishings. It’s also crucial to consider intangible assets like customer relationships, contracts, and brand recognition. During the due diligence process, your buyer (or their attorney) will likely request all of these items so it’s useful to have the information collected beforehand.

3. Put Yourself In The Buyer’s Shoes

What is your buyer looking for? A business they can step into as an owner-operator? Are they a competitor looking to add to their book of business and merge your team into their business? Are they someone providing a product in an adjacent market and looking to add capabilities to their offering?

Putting yourself in your buyer’s shoes and marketing your business to them based on what they want can help you negotiate a better deal.

4. Create A Timeline

2-3 years is a reasonable time to prepare for your business sale. That’s enough time to build profitability for the business and ensure you are ready for the transition. You’ll get a maximum return when you show your business has increased profitability over the past few years. 

5. Get A Business Valuation

The next thing you should do is determine the value of your business. A business valuation helps you determine the right price for your business. Make sure you use a business appraiser to get the valuation. Having a professional valuation will help you gauge your buyer’s offers.

Through a business valuation, you can know about your financial situation, market position, and your organization’s strengths and weaknesses. You can get the valuation from regional business brokers, local accounting firms, or investment banking firms. 

6. Use A Broker

Depending on your situation, using a business broker can maximize the value you get for the sale, even after their fees. Ask around your professional network for recommendations and vet them thoroughly. Have they sold other businesses like yours? Check references and make sure the broker is providing consistent results.

7. Prepare Documents

You should also have your financial statements ready before you sell your business – bank statements, credit card statements, financial statements, and don’t forget the tax returns! Make sure you review any permits, incorporation papers, leases, licensing agreements, and vendor contracts as well.

8. Keep Employees Incentivized

Key managers can create a conflict of interest during the sale. Make sure to keep your key team members happy and engaged throughout the process to avoid any uncertainty during the sale. You may think you can rely on non-compete or non-solicit agreements, but it’s much easier to keep your team happy.

9. Find A Buyer

A business sale can take between six months and two years. It can be a challenge to find the right buyer. Buyers always look for business with good cash flow. They want to invest in a business that can increase their return on investment. If you build your company to provide the buyer with what they need, you will usually not have a problem finding a buyer. Often, a buyer will even come from the network you’ve built over the years of operating your business.

Raleigh Business Acquisition Attorneys

It’s important to have the right team on your side during an acquisition. The team at Wilson Ratledge has worked with many business owners to sell their businesses over the years, and helped them get to the next phase in their journey. We can help you too – call us today at 919-787-7711 or fill out our online form to schedule a consultation today!

The pandemic and the government stay-at-home order have significantly impacted most businesses and business owners. As a result, there are instances where business contracts are not honored. This raises the question whether the force majeure clause can pardon contract non-performance.

The force majeure clause is a time-hallowed contract defense. The clause protects either party when they cannot honor contracts due to events beyond their control. Note that if the court finds that an event was within a party’s control, the defense will not be applicable.

Most contracts have the force majeure clause. Unfortunately, very few cases in North Carolina interpret the clause. 

If you are a business owner who wants to enforce a force majeure clause, you may be wondering whether the courts will rule in your favor. This article is for you. We will discuss the force majeure clause in detail and what courts are likely to consider before ruling in your favor or against you.

Will courts rule in your favor? What are the possible considerations?

It is a little bit difficult to predict how North Carolina courts would decide cases touching on non-performance of the contract regardless of whether a party seeks to enforce a contract or excuse performance. However, there are critical considerations that courts are likely to make. They include; 

• Whether there was a proper prior notice in view of the force majeure clause.
• The specific wording of the clause in the contract. Some contracts have extensive force majeure clauses that list possible events, while others have a general clause.
• Whether the issue in question, e.g., the pandemic, was the cause of breach of contract.

How to ensure that the force majeure clause works in your favor

The force majeure defense starts and ends with the contract. Therefore, to use this defense, you need documentation. For the clause to work in your favor, you need to document the impact of the issue at hand, e.g., the pandemic, in detail. Additionally, you need to ensure that the documentation aligns with your contract’s force majeure provision.

What if there is no force majeure clause?

Although most contracts in North Carolina have the force majeure clause, there are a few that don’t. In such instances, you may rely on these two doctrines;

• The doctrine of frustration of purpose
• The doctrine of impossibility.

In the frustration of purpose doctrine, the performance of the contract is still possible. However, an unforeseen event causes a failure of the consideration or destroys the expected value of the performance. Note that this defense does not apply in cases where parties could reasonably foresee the frustrating event.

If your contract does not have a force majeure clause, yet you seek to be excused from performance, you can use this doctrine as a defense. However, if you choose to use this doctrine in matters relating to the pandemic, note that the court will greatly rely on the wording of the agreement/contract and facts, i.e., whether the expected value of the performance is destroyed.

The doctrine of impossibility excuses a party from non-performance in instances where the subject matter of the contract is destroyed without the fault of either party. In this doctrine, the subject must be destroyed.

The chances are that this doctrine may not be applicable on issues relating to the pandemic, but it may come in handy in other instances. The court greatly relies on the facts in such instances.

Contact Our Raleigh Business Lawyers

Utilizing the force majeure clause in a contract can be complex, and it’s important to have an experienced business attorney at your side. Wilson Ratledge has the experience to be your trusted advisor when working through contract issues in your business. Contact us today at 919-787-7711 or fill out our online form to schedule a consultation with one of our business contract attorneys.

The economy was thriving before the COVID-19 pandemic struck, pulverizing economies globally. But with the mass roll-out of the vaccine, and the virus subsiding, world economies are rising out of the ashes. Most areas in the US, including in North Carolina and especially in the Triangle, are now experiencing a steady increase in economic growth.

The current state of the economy

There has been a significant change in various sectors of the economy from the last quarter of 2020 and the first quarter of 2021. Here is the current state of the economy in post-pandemic times:

Inflation becoming healthy

A healthy economy needs to have an inflation rate of 2%. Inflation is the increase in prices in the everyday products that you buy. A healthy inflation rate means that you expect prices to go up. This expectation pushes demand and thus the economy grows. When the inflation rate is too low, it shows that the market demand is too low to push product prices up. By the first quarter of 2021, the inflation rate was 0.8%, although inflation appears to be quickly increasing in Q2 2021.

Decreasing unemployment and joblessness rates

The pandemic came with massive job losses, evidenced by the loss of 20.4 million jobs by the first quarter of 2020, with 1.3 million jobs lost in the manufacturing industry alone. At the time, the unemployment rate skyrocketed to 14.7 percent. Companies laying off workers was an indication of a recession.

The Bureau of Labor Statistics conducted research on how many jobs were added by the first quarter of 2021. According to their findings, the unemployment rate was 5.8 percent by the end of the first quarter of 2021. Unemployment indicates an economic lag since companies will only employ when they have enough demand to warrant new employees. Even with the creation of thousands of jobs in 2021, it will take a while to recover from the massive job loss that occurred in 2020.

Rising Gross Domestic Product (GDP)

The most recent GDP rate was 6.4 percent for the first quarter of 2021. This follows a GDP rate of -31.4 percent between May and June 2020. A healthy economy has a GDP of 2 percent. Anything higher than 3% shows that the economy is overheating and below 2 percent shows a contraction in the economy.

A GDP of below 0% shows a recession in your economy. The recession in the second quarter of 2020 was one of the worst ever in US history. Before then, the worst recession was in the first quarter of 1958, where the GDP dropped by 10 percent.

Lower interest rates

Lending leads to economic growth. Healthy federal interest rates should be around 2% or higher. Currently, the fed funds rate stands between 0 and 0.25%. This was a move by the Federal Reserve to encourage lending and boost the economy.

Interest rates determine the rate of borrowing from banks. Lowered interest rates encourage consumers to borrow from banks. If the rates are too low, people won’t be in a hurry to take out loans and banks will not benefit from the borrowed funds. This creates a liquidity trap whose remedy is to increase the interest rates just enough to benefit banks, attract and keep consumers.

The stock market is reawakening

The stock market reflects investors’ view of your economy. The stock market has been doing really well post-pandemic. S&P 500 started hitting new highs in the third quarter of 2020 and was up by early June 2021 at 11.63 percent year to date (YTD). The Dow hit a record high in the second quarter of 2021, going past 34,000 and pushing 35,000 in early June 2021.

North Carolina’s recovery steps

In recent months, the Triangle has seen some great wins with companies setting up shop here, including Apple’s recent announcement. Apple plans to invest $1 billion in a tech campus in Research Triangle Park. This will create more than 3,000 tech-based jobs in software engineering, machine learning, and other fields. This has great implications for an area already experiencing huge growth in tech.

The Triangle has been abuzz with new innovations for decades. Today, RTP occupies 7,000 acres of land and hosts hundreds of tech companies, startups, government agencies, and non-profit organizations. These companies flood this region because of the technological infrastructure and affordable cost of living.

Raleigh’s investment towards a reliable workforce

The city is investing in development programs to nurture talented individuals and create equitable communities. This is in line with its 2021 strategic plan to grow the city’s diverse economy through equal employment opportunities for all communities, local partnerships, and supporting businesses and entrepreneurs through technology.

Raleigh aims at creating a workforce that is so diversely talented that it encourages investors to stay and invest in the city. Raleigh’s strategy states that talent development is vital to economic growth.

Durham’s steps to encouraging startup growth

The city of Durham is using several criteria to choose projects in the city. Some are selected by the mayor and city manager, while others are stipulated within the strategic plan. The plan involves creating innovative opportunities across the city and building equitable, diverse, and engaging communities.

Other projects come from IdeaStarter — a program that encourages the city staff to forward their creative ideas that nurture innovation and improve city processes. Another program is Innovate Durham, which allows the city to test out new ideas, businesses, products, and services for viability and sustainability.

The workforce situation in North Carolina

As much as the Triangle is making remarkable strides in job creation, it still has a long way to go to recover from the massive job loss caused by COVID-19. Thousands of jobs, from tech to hospitality, still remain vacant. This is because many members of the workforce are uncomfortable with exposure to the virus and this is reducing the potential candidate pool.

As the pandemic subsides, and people go back to their workplaces in North Carolina, and particularly in the Triangle, investors are gaining confidence again. 

Our Business Law Team Can Help

Whether you’re just starting your business here in the Triangle, if you need help with business operations, or if you’re looking to exit your business, our legal team here at Wilson Ratledge can help. Reach out to us today to schedule a consultation with our experienced business law team.