There are many different things that influence why a business goes bankrupt. In some cases, the company’s owner just makes critical mistakes like investing money in ways that don’t get enough return. In other cases, there’s a major event like a financial recession, and that business loses customers through no fault of its own.
People certainly understand that this happens in that it’s a risk they take on when starting a business. In fact, this is why many people will start a limited liability company (LLC), because it means they’re not personally liable if their business venture fails. But it may be true that far more businesses go bankrupt than many reports show.
Selling assets privately
The issue is that some business owners will simply sell their assets privately. They don’t file for bankruptcy and there is no official paperwork. After they sell off what they own, then they close their doors and stop operating. This is much the same as liquidation bankruptcy, but it may not qualify if they didn’t use the official process.
For instance, someone may go into business as a handyman. They will buy thousands of dollars of tools and equipment for their truck. But if that business doesn’t work out, they may simply sell off those tools to friends, family members or even strangers that they find online. They don’t have a storefront or other complex types of property to sell, so they just take care of it on their own and close down the company.
But doing this can be a risk. Business owners could overlook critical steps or not see all of the financial relief that they were hoping for. They could still have outstanding debt – now with no income. If you’re considering closing your business, be sure you know exactly what options you have.