Small Business Closures | As Closures Rise Amid Increasing Costs, How to Respond to the Legal Issues That May Arise

The rise in small business closures is driven by a combination of economic and structural factors.

First, as stores in the same industry become concentrated, creating overcrowded commercial districts, competition among business operators has grown more intense.

In addition, as consumers change the way they spend, traditional sales methods centered on offline stores are increasingly affected.

Rising rents and labor costs also raise the fixed-cost burden on small business owners, and the expansion of online distribution and the increase in contactless consumption are likewise assessed as factors bringing about changes in the offline self-employment market environment.

These factors are analyzed as combining to affect the upward trend in closures.

Such a cost structure can create a situation in which actual remaining profit decreases even when sales are maintained at a certain level.

When profitability falls, it becomes harder to keep operating the business, and the number of cases in which operators decide to wind down their business may eventually rise.

The rise in small business closures, therefore, can be seen not as resulting from declining sales alone, but as the combined result of changes in cost structure and deteriorating profitability.

Where a business was operated on leased premises, issues related to the lease agreement may arise during the closure process.

If operations are terminated while the contract term remains, disputes may arise over matters such as termination of the lease, the timing for the return of the deposit, and the obligation to restore the premises to their original condition.

In particular, where the lessor does not accept early termination or claims damages, the matter may develop into a civil dispute.

In the case of a small business owner who operated on leased commercial premises, recovery of the premium (kwonrigeum) is often a consideration in the process of winding down the business.

When finding a new lessee, however, if the lessor refuses to conclude a contract with the new lessee without justifiable grounds or demands an excessive rent increase, problems may arise with the recovery of the premium.

Debts incurred in the course of operating the business, such as loans, payments for delivered goods, and unpaid expenses, must also be settled during the closure process.

Because existing debts do not automatically disappear even when a business is wound down, conflicts may arise in the settlement process with creditors.

In the case of a sole proprietor in particular, business debts may extend to personal liability, so it is necessary to confirm the debt structure.

In the case of a business that employed workers, issues regarding the settlement of wages and the payment of severance pay may arise during the closure process.

Under the Labor Standards Act, when a worker has left employment, wages and severance pay must be paid within a set period from the date of departure, and a failure to comply may lead to a labor dispute.

In addition, issues related to dismissal procedures and the arrangement of working conditions during the closure process must be reviewed together.

When closing a business, a business operator must file a closure report with the National Tax Service.

If the closure report is not properly filed, tax issues may continue to arise, so confirming the correct procedure is necessary.

At Daeryun Law Firm LLP, professionals from various fields, including labor consultants, corporate attorneys, certified public accountants, and tax accountants, work together to provide comprehensive advice on the legal and business issues that may arise during the small business closure process.

The response required for a small business closure may differ depending on the industry, business structure, and contractual relationships.

Accordingly, the various matters that may arise during the closure process, such as review of commercial lease agreements, organization of claims and debts, settlement of employment relationships, and review of tax filings, can be examined according to the circumstances, and the direction of the response can be explored together.

In addition, taking into account the operating form and contractual structure of each business, advice is provided to organize the scope of liability and settlement relationships and to review the necessary legal responses.

If you need to organize contractual relationships or confirm the scope of liability during the small business closure process, 🔗Corporate Attorney Legal Consultation Reservation, you may review the relevant matters.