This S corporation owns a small convenience store that is struggling to stay afloat. 2 months ago one of the employees had a work accident and the company had no workers compensation insurance. The employee is now filing a workers compensation petition but the corporation has no liquidity and owes money to its 100% shareholder. Is it possible to sell the business and pay the loan to the shareholder up to where the money reaches and then shut down the corporation without paying the workers compensation petition? Is the shareholder loan preferential?
What you are contemplating is not possible because you would have to disclose the claim to any potential buyer of the business, or face a potential fraud suit for failure to disclose. You could also be sued by your WC claimant for attempting to defeat his/her legitmate claim.
Phillip M. Smith Jr.
PHONE: 855 IRSTAXBIZ
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is [email protected]
You can shut the corporation down, but you have to make arrangements for the payment of all creditors. The employee's workers compensation claim and any other third party claims have priority over the amount owed to the shareholder. You should hire an experienced business lawyer in your area to help you with the liquidation of the corporation.
Disclaimer: This answer is provided for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Actual legal advice can only be provided after completing a comprehensive consultation in which all of the relevant facts are discussed and reviewed.
You may already have a much larger problem. Generally, the Corporation only provides protection if it is insured for potential liabilities. In CA and many other states, failing to purchase mandatory WC insurance will leave the Officers exposed to the Uninsured liability. That won't just hinder the sale; it could financially ruin you personally. You must contact and retain a WC Defense attorney In FL to navigate and mitigate your poor financial decision. Like cancer, ignoring the situation will not make it go away.
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