What Happens if an LLC Is Sued After It's Dissolved?

By Jennifer Kiesewetter, J.D.

What Happens if an LLC Is Sued After It's Dissolved?

By Jennifer Kiesewetter, J.D.

A limited liability company (LLC) can be sued after it's no longer operating as a business. If the owners, called members, dissolved the company properly, then the chance of the lawsuit being successful is slim. Further, if they don't properly dissolve the company, then the aggrieved party may not have the opportunity to collect if the court rules in its favor.

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Members should pay careful attention to their state requirements when dissolving the business. You can't simply stop doing business and assume the company is terminated. By failing to follow the rules, company owners can put themselves at risk for liability, even after they close their doors.

Dissolution of an LLC

State laws govern the steps for dissolution. By failing to follow these rules, such as filing articles of dissolution, the company may not terminate. If the company isn't dissolved according to state law, then it can still be sued until it ceases appropriately. If a court rules against it, then the plaintiffs may not collect on the judgment if the company has no money.

If it terminates according to its state rules, then the opportunity to sue the business ends after a waiting period. In most states, you cannot sue a dissolved LLC after three years. State law governs these waiting periods as well.

Notice Rules

Under most state laws, LLC owners must notify all known and present debtors of the company's impending dissolution. If they are terminating the company, then they'll need to send proper notice to each creditor, allowing them to file a claim against the business for any outstanding invoices.

Most states would give protection to owners if they sent notices to all known and present debtors. In other words, if proper notice was given, then the creditors may have a shorter time to file any claim against the business. Further, if they don't know of a creditor, then that party would have a difficult time suing you after dissolution.

LLC owners cannot close a business to avoid paying their bills. They should pay all creditors known to them and send the required notice out to all vendors. However, if the members know of certain creditors, but do not pay them or send them notice, then the creditors could sue the business for amounts owed, leaving them open to personal liability.

Piercing the Corporate Veil

In specific circumstances, such as fraud, individuals can sue the members personally, otherwise known as piercing the corporate veil. The purpose of this doctrine is to prevent them from hiding behind the limited liability protections of the business for individual actions or inactions.

In these cases, the court can hold the members individually liable for the debts of the company if they engage in heightened wrongdoing. This is most common in companies where only a few individuals or entities control the ownership.

Commercial Liability Insurance

The owners of the company may purchase this type of insurance, which protects them from specific actions or inactions raised in a lawsuit. Although it does provide specific protections from personal liability, the business structure is not absolute. If your company gets sued for a large sum of money, having a liability insurance policy is prudent.

If someone sues your LLC after it's dissolved, be sure to check your notice requirements and waiting periods. Additionally, if the lawsuit will stand, you may want to consider settling instead of battling it out in court. Be sure to check your state's laws so you understand your obligations when closing your business. Doing so could offer you additional protection in the case of legal proceedings.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.