Business Closed taxes owed

My business has closed. My partner who was supposed to be my friend as well ( I know, I know no partners especially friends I've learned the hard way) cleaned me out one weekend and now there are bills owed and taxes owed. It is a C Corp and just me and him are on the charter. I want to know if legally we are both bound to pay any outstanding monies owed equally or if one is more responsible than the other. There are no assets to sell and no money to divide or anything like that I just think he is going to try and stick me paying everything when he is responsible for half and he is going to try and bail on his responsibilities. Unfortunately being new to the whole business world as an owner we did not have any partnership agreements written up . I really can't afford an attorney to litigate this so any help or resources would be greatly appreciated. Thanks

You are in an unfortunate but very common problem. The vast majority of businesses collapse. Disagreements between partners is one of the biggest reasons why they collapse and is one of the hardest problems to fix since it revolves around people instead of business facts.

However, there seems to be some hope in your situation. You said your business is a C Corp. Technically C Corps are “persons” under the law and shareholders of C Corps are not responsible for debts incurred by the corporation. It is therefore likely that you may be able to walk away from the business, let it go into bankruptcy and not be responsible for the outstanding bills.

Problems: Although this may solve “vender” bills, it may not get you out of your tax bills and any bills that you have personally guaranteed. (Often lenders and some venders require “personal guarantees” for bank loans, leases and other debts. If you have personally guaranteed something, the debt holder can still go after you even if the business fails. Note however, if both you and your partner “guaranteed” this debt, you are BOTH responsible for it.) You may also face three other types of problems. One, called “piercing the corporate veil” is a legal proceeding that a debtor can initiate to say that you and/or your partner “really” operated the business as yourselves, not a corporation. This is tough to prove but can be done. To protect yourselves, you need to make sure you do all the “board minutes” and other corporate paperwork right. However, the likelihood of someone actually trying to pierce the corporate veil is small since the litigation proceedings around it are expensive. Two, if there is any “fraud”. If you defrauded someone, they can go after you personally, even if the corporation goes under. This is hard to evaluate but use some common sense here. Three, the government makes the rules and often puts in provisions that they can go around “normal” business practices. Not paying your taxes or any governmental debt is a criminal offense as well as a civil one. Be very careful here.

Finally, if you partner has run off, you can go after them for what they took from the business without authorization, if you really want. However, that will require a law suit and that’s expensive.

Hope this helps and good luck!

Thanks for the reply your insight is very helpful. Would you still recomend I consult with an attorney in regard to the taxes owed or should I meet directly with someone from each tax authority (in this case TN Sales Tax & Federal Payrol Tax) I was told by an accoutant friend that alot of times they will split the amount owed and hold each person individually liable. The amounts are not large approx. $3000 in sales tax and $2500 in payrol tax. I have a family member who can give me $3000 which would be enough to pay my half of the taxes but that is all I have available to me untill I start my new job. Again thank you for your reply.

RWarren,

I don’t know if the tax authority will “split” the amounts owed. Technically, they can go after you both and let you guys sort it out.

Attorneys cost money and the amounts in question are not large. Although I’m not a tax expert, I believe tax authorities are good about setting up payment plans if people cannot pay everything up front. You can always go to them and “throw yourself at their mercy” sort of speak. Explain the situation and hope for the best. That may get you some breaks on penalties, interest or maybe even the taxes owed. However, there are no guarantees.

My point is, if you are willing and able to “pay the taxes” if you are forced too, talk to the tax authorities and hope for the best. If you think it’s worth paying an attorney to maximize your odds on a good outcome, then hire an attorney.

Regardless, I think you may want to talk to a lawyer to make sure your corporate dissolution goes fine.

Note:
1. Tax specialist attorneys are different the business or corporate specialist attorneys, even though technically both can represent you.
2. I believe some accountants, not just lawyers can represent you to the tax officials.