We are contemplating closing down our small business. What if all debts cannot be paid?

First, please understand that I am NOT an attorney, and this advice is only from experience and is my opinion.

As an S Corp you and or your partners are the company. You share in the profits and you share the debt. If the company is dissolved and debt remains you and or your partners will share that debt and it will be your responsibility to repay it, on a personal basis.

Hello d:

YOU are not responsible for the corporations debts. That's WHY you formed the corporation in the first place.

excon

I should have been more specific. Any signed debt; example loans from a bank to the Sub S Corporation that is personally signed, you are still responsible for. Sub S Corporations have the same benefit as other Corporations; LLC, C Corporations, etc. But any debt which you as an owner signed for and still owed upon dissolution of the Sub S are the responsibility of that person. Most Banks require loans to Sub S Corporations be signed for by the principle/s of the Corporation. These are personal requirements to repay the loans.

An example of this may be a "line of credit."

Please see...

Be A Successful Building Contractor - Google Book Search (http://books.google.com/books?id=e7xk8F_bevEC&pg=PA36&lpg=PA36&dq=sub+s+corporation+responsible+for+debt&source=web&ots=2fq6rPqkjJ&sig=WACbRxEeF3RXTqaIRGjdniDYdII#PPA37,M1)

If no personal debt was incurred or signed for, then yes I agree excon then you are correct.

Hello again, d:

Yes, we needed that clarification. Stringer is right on. Any debt that required a personal guarantee, is just that - a loan you PERSONALLY guaranteed...

However, other debts such as what you owe to suppliers, or rent or even to your employees, aren't debts that YOU are personally responsible for.

The corporations TAXES, however, DON'T die with the corporation and you WILL personally owe them.

I don't recommend stiffing any of your creditors, but that's a business risk they take when they offer credit to a corporation. Your employees, if any, are a different matter. True, you personally won't owe them, but you do morally, in my view. THEY didn't offer to work on credit. It's just how labor happens.

excon

Hello again:

Given that we're covering ALL the bases, another thought occurs to me that I should have included above... Oh, well.

When and if you cease doing business, you can't just empty the corporate checking accounts. It isn't your money until ALL the bills are paid. If you do, and you did it in order to stiff your suppliers, they could charge you criminally with fraud. Plus, that could open the door for them to "pierce the corporate veil", and go after you personally for the money.

If there's NO money, NO receivables, and only BILLS, then shut 'er down. You will have ONE final tax return that'll be due.

excon

Hello again:

Given that we’re covering ALL the bases, another thought occurs to me that I should have included above..... Oh, well.

When and if you cease doing business, you can't just empty the corporate checking accounts. It isn't your money until ALL the bills are paid. If you do, and you did it in order to stiff your suppliers, they could charge you criminally with fraud. Plus, that could open the door for them to "pierce the corporate veil", and go after you personally for the money.

If there’s NO money, NO receivables, and only BILLS, then shut ‘er down. You will have ONE final tax return that'll be due.

excon

Good additional thought Excon.