Rules regarding running and dissolving a limited liability company vary according to the state law under which the LLC was formed. An LLC is an independent legal entity that exists separate from its owners, which are called "members." It provides its members the same protection from personal liability that a corporation gives. Note that an LLC must be formed by filing articles of organization with a state business registrar, and it must be dissolved by filing articles of dissolution. Whether or not you can sue a dissolved LLC depends on whether it was properly dissolved, and if so, how long ago.
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LLCs are subject to the state laws governing LLCs in the state where they were formed. Each state has its own statute that outlines dissolution provisions for an LLC and rules regarding suing dissolved LLCs. While the dissolution procedures are very similar among states, there may be small differences in the way each state treats creditors and other people who sue after the LLC has filed articles of dissolution. Anyone who is considering starting such a lawsuit against a dissolved LLC should consult an attorney to find out the specific rules in her state.
In every state, the ability to sue an LLC is only hindered after an LLC has been properly dissolved. Some people close down their businesses and think that's the end of it -- that if they simply stop running their business, it will be automatically closed after a number of years. But that's not the case. If the members of an LLC simply cease operations or don't properly follow their state's dissolution procedures, the LLC can be sued until it is properly dissolved.
Proper Dissolution and Cancellation
If an LLC properly follows all of its state's dissolution procedures, your ability to bring lawsuits against it eventually ends. After a certain point, depending on the state's particular laws -- three years after dissolution is common in many states -- the LLC is "canceled" and no new lawsuits can be brought. For example, in Washington, a claimant has three years to file a suit after an LLC is dissolved, but it can never file a suit after the LLC is canceled.
Your ability to sue a dissolved LLC might also depend on the state's cut-off time following an LLC's notification that it is going out of business. Many state laws will let an LLC publish notice in a newspaper declaring it is going out of business. Anyone who wants to sue has a certain period of time from the date of publication to bring a lawsuit. In Illinois, for example, the notice must be published once in a newspaper and state that any claim is barred five years after the notice's publication.
Judgment After Dissolution
If state law and your time frame allow you to sue an LLC after it is dissolved, you may still face other obstacles. There is a limit to how much money or assets you can acquire in a judgment against a dissolved LLC. When suing a dissolved LLC, you can only collect from its remaining undistributed assets or assets distributed to members after liquidation, depending on the circumstances.
Piercing the Veil
Depending on the circumstances that lead you to want to sue a dissolved LLC, you may be able to sue the LLC members themselves. This is called "piercing the corporate veil" and applies only in limited situations in which the members engaged in some wrongdoing and the court decides they cannot hide behind the protection from personal liability that an LLC usually provides. For example, if an LLC member misused LLC funds or committed fraud, you may be able to sue him instead of the LLC.
References & Resources
- Law Office of Robert J. Mintz: Overview: Limited Liability Company
- Citizen Media Law Project: Piercing the Corporate Veil
- Google Scholar: CHADWICK FARMS OWNERS ASSOCIATION v. FHC LLC, Wash: Supreme Court 2009
- Illinois General Assembly: Illinois Compiled Statutes: 805 ILCS 180, Limited Liability Company Act
- Miller Nash: Heads I Win, Tails You Lose: Should Developers Dissolve Their LLCs After Completing a Project? (Part 2)
- Citizen Media Law Project: Limited Liability Company
- U.S. Small Business Association: Steps to Closing a Business
- Comstock/Comstock/Getty Images