When you first start your own business, you have fantasies of how great business will be. You daydream about the possibilities and the successes. One thing new business owners often overlook is the possibility of getting a bad deal or into a contract dispute. However, these little things, or not so little things, add up quickly. As a result, they leave you and your business struggling financially. These struggles may lead to a business lien. Join us for some basic information about a business lien, including what it is and the types of liens.
What is a Business Lien?
In short, a business (or corporate) lien is a legal claim that another corporate entity or government places on a business for a debt owed to the one who placed the lien. These debts can include unpaid rent, falling behind on other business-related bills or expenses, or even back taxes. The lien is placed on the company’s assets, which can include property or monetary assets. It is a way of indicating that the business has one or more of these financial obligations owed. Once a lien has been placed on a business’s assets, the owner is unable to sell those assets until it is removed. Removing a lien requires settling the debt in one way or another, typically paying it off.
Types of Liens
There are several different types of liens that can be placed on a business. What type of lien is placed is determined by the debt that is owed.
Tax Lien
As the name suggests, any taxing authority (federal, state, or local) can place a lien on a business for unpaid taxes. The lien is against all property owned by the business. Property can include real estate, vehicles, and finances. If the outstanding taxes are not paid within a specified time period, the taxing authority can establish a lien. Once the debt is paid, the lien is typically removed within 30 days.
Judgement
Creditors usually request this type of lien be placed on property in order to settle the debt should the owner sell the property. This type of lien can also be used as a result of a lawsuit against the business. The judgement lien can be ordered by the court to pay any additional claim amounts after an insurance payout, for instance.
Mechanic’s Lien
State laws vary on this type of lien, but in general these liens are placed by contractors, sub-contractors, or other suppliers. If a business fails to pay a debt to one of these entities, say, after a property renovation or expansion, then the lien is placed on the business property. This lien prevents any sales or refinancing on the property until the debt is paid. The contractor may even be able to auction off the property as a means of recovering the debt.
In Conclusion
If your business is facing a lien, it is important to speak with your attorney as soon as possible. They can help you determine the best way to protect your business and to remove the lien. Your attorney can help you to resolve any disputes or figure out how to quickly repay the debt so the lien can be removed.