Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
We all know that running a business is hard work. It’s also stressful when the time comes to shut down operations for good.
Owners need to make sure to correctly and legally dissolve their LLC before closing its doors.
Dissolving an LLC is a complicated process. If you don’t dissolve it properly, then you could open yourself up to lawsuits and other legal problems.
What if you want to sue a dissolved LLC?
Whether you’re the owner of the LLC or someone looking to sue the LLC, this article will walk you through each step of the dissolution process in detail. It will help both parties understand how everything works when questions revolve around the topic of suing dissolved LLCs.
Quick Answer: Can a Dissolved LLC Get Sued?
Yes, a dissolved LLC can get sued if it isn’t properly dissolved.
That’s the simple answer. The way this works, in reality, is far more complicated.
Laws differ from state to state. It’s important to consult with your state’s Secretary of State to figure out whether it’s possible to sue a dissolved LLC. What follows are general best practices to adhere to around this process.
Most states work within a three-year period when it comes to suing dissolved LLCs. This is the amount of time you have to file a lawsuit. If it’s been longer than three years after an LLC dissolves, then it’s probably too late.
Additionally, there are states where it’s not possible to sue a dissolved LLC.
You Must Dissolve Your LLC Correctly
It’s complicated to dissolve an LLC. There’s a lot of information and paperwork involved in this process.
It’s important that you don’t rush or overlook anything because you might run into serious legal consequences down the road.
One thing that you need to take care of is notifying creditors. Most states require you to notify any and all creditors in writing after dissolving your LLC.
You also need to file a paper document with the state that says the LLC is going to dissolve. There’s a filing fee attached to this process. However, it’s worth doing right the first time rather than risk an expensive lawsuit.
The ideal solution is to hire an attorney. They’ll know your state’s laws and can help you file the correct paperwork. Knowing these rules helps cut down on confusion for everyone involved who may have questions about suing a dissolved LLC.
The Winding Up Process
You should understand a term called “winding up.” It’s the phrase used to refer to the timeframe as an LLC’s affairs wind down and close completely.
You’ll likely need to settle all legal actions or pay debts that remain unpaid during the winding-up process.
Once this process is complete, the LLC is officially dissolved.
What to Do When You Want to Sue a Dissolved LLC
If you want to sue an LLC that’s already dissolved, then you need to do plenty of research first.
Don’t just walk into the courthouse and ask about suing a dissolved LLC without having any idea about how it works. Most judges will throw out your case without a second thought.
One thing you need to know is that the state where you’re originally filing the lawsuit needs to have jurisdiction over your case.
If your case meets all requirements, then you need to make sure the LLC dissolved properly. You can do this by checking with the Secretary of State’s office for more information.
Suing an LLC that Dissolved Improperly
Did you notify all creditors when dissolving your LLC? That’s one of the most common mistakes made during the process that determines an improperly dissolved LLC.
Do you want to sue the LLC? If you can’t find out that the LLC dissolved properly, then there’s a chance that it wasn’t.
It’s probably possible to sue it if the dissolution looks invalid. File a claim with anyone involved in dissolving it if your personal state’s laws say the LLC isn’t an entity any longer.
As the former owner of the improperly dissolved LLC, you may find yourself personally liable. You might have to reimburse creditors or partners for any damages they suffered due to the dissolution of your LLC.
Another reason to see a lawsuit take legs when suing an improperly-dissolved LLC is when the LLC didn’t adhere to any compliance issues. For instance, this happens if the company didn’t file for all required business licenses.
Suing an LLC that Already Dissolved Properly
It’s more difficult to sue an LLC that dissolved properly because you first need to demonstrate why the dissolution wasn’t valid.
Most states provide protection to LLCs that went through the dissolution process legally and correctly. After the three-year window mentioned above, many states call the dissolved LLC “officially canceled.”
It’s impossible to sue an LLC that has canceled status. That three-year window will get extended, though, if the state finds any problems with how the LLC performed its dissolution procedure.
Here are three points that the state or court looks at to determine if it’s possible to sue the LLC:
- Did the LLC follow the proper dissolution rules and procedures?
- Was the LLC in compliance at the time of dissolution?
- Did the LLC already pay all known claimants?
It’s difficult to sue an LLC that meets all three of these factors.
How to Determine Viability of the Lawsuit
In order to determine the viability of a lawsuit against an LLC, you need to do the proper homework. Having a court dismiss your case without looking at the merits of your claim isn’t a good outcome for anyone involved.
When it comes to legal matters, you need to gain a full understanding of how the law works. It’s a good idea to speak with a lawyer who can help you determine if there’s any merit in suing a dissolved LLC.
For example, someone might file a lawsuit against a dissolved LLC without understanding that the LLC met all three of the points from the previous. Or, they didn’t understand that they couldn’t sue after the three-year winding-up period. This lack of knowledge is often referred to as “legal ignorance.”
Another factor to consider is whether the LLC has any money or not. If you take an LLC to court and the company only has $100 to its name, then you’re not going to get very far with your lawsuit.
The plaintiff must have a proper understanding of what they’ll gain if the court rules in their favor. Without this, filing a suit against a dissolved LLC isn’t worth it.
What Happens to Assets and Debts When an LLC is Dissolved?
When an LLC dissolves, it must pay off all financial obligations and return assets to its owners.
If the LLC has no money, then it doesn’t owe anything to anyone else. If enough money exists to pay creditors for outstanding debts, then this will occur.
The courts will distribute the remaining funds among the remaining LLC members. If there are more debts than assets, then the owners of the LLC might have to pay for some of the outstanding debt with their own money.
The Last Word
As you can see, there are many “what ifs” involved when suing a dissolved LLC. Whether you’re the plaintiff or defendant, the best route from here is consulting an attorney. You need to obtain legal counsel to understand all the factors such as state laws, LLC compliance, and whether time has run out on any claims.
Filed under: Advice Columns