Last month, Melissa Demorest LeDuc sat down and filmed a webinar with ICLE to discuss winding down a closely held business, as well as recommendations to minimize client liability when ending a business.
While there is no formal definition of a “closely held business,” this type of business is typically one where the owner(s) are involved in the day-to-day operations of the business. The IRS also provides a definition of a closely held business, which is “a corporation that: [h]as more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals at any time during the last half of the tax year, and [i]sn’t a personal service corporation.” Family-owned businesses are a good example.
Some key takeaways from the webinar include:
- Typically, a company’s organizational documents will identify certain situations that trigger the winding down of a business. It is important to always check if any of these documents exist, and if so, to carefully examine and analyze the provisions.
- However, even if a closely owned business’s documents provide a winding down and dissolution process, it is important that all the appropriate statutes are checked, such as MCL. 450.4801 (LLC dissolution), , MCL 450.4805-.4808 (LLC winding up), MCL 450.1801 (corporate dissolution), MCL 450.1833 (corporate winding up), and MCL 450.251 (nonprofit corporation).
- It is also important to recognize that not all businesses or entities wind down the same way. For example, if the company that is winding down has more than 50 employees, the company is required to provide a WARN (Worker Adjustment and Retraining Notification) Act notice to (1) its employees, (2) the Michigan Workforce Development Agency, and (3) the chief elected office or government.
- Attorneys need to be able to recognize the circumstances in which winding down my arise, and properly address the measures which a company may need to take to wind down. Closely held businesses using wind down in one of two ways: (1) selling the assets of the company, or (2) selling the ownership interest in the company.
- When winding down, steps that get missed often involve insurance, which may be available to protect both parties from post-closing claims and indemnification issues. For example, a tail policy can extend the seller’s liability insurance for claims that are brought after the closing date, from issues that arose before closing.
The full webinar is now available and can be found under ICLE’s On-Demand Seminars. A clip from the webinar can be viewed here:
https://www.icle.org/modules/seminars/video.aspx?ID=1_al5ws5m4
This article was written by Emily Honet, Law Clerk
