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

By Stephanie Dube Dwilson

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.

State Laws

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.

Improperly Dissolved

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.

Ready to start your LLC? Start an LLC Online Now

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.

Notification

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.

Ready to start your LLC? Start an LLC Online Now
Legal Ramifications of Dissolving an LLC
 

References

Resources

Related articles

Maryland's LLC Dissolution Law

By properly dissolving your limited liability company, you can ensure that creditors and state agencies are notified and your finances and professional reputation are protected. An LLC is a common business structure that combines the management flexibility of a partnership with the limited liability of a corporation. The operating agreement or articles of organization may provide when and how the LLC may be dissolved and how you should distribute its assets. Maryland law regulates how LLCs are dissolved if not spelled out in the operating agreement.

How to Liquidate an LLC

According to the U.S. Department of Labor, about 17 percent of small businesses fail within the first five years of operation. When an LLC closes, its assets are liquidated and used to pay LLC creditors, and any remaining funds are distributed to LLC members according to their ownership stake. This process of liquidating an LLC is called “winding up,” and must be completed before the LLC can be terminated.

Can I Use a Bank Account After Dissolving an LLC?

Using your limited liability company's bank account after dissolution is essential to wind up the affairs of the LLC, but you cannot use it to enter into new business. An LLC is an independent business entity formed under state law, which also controls how an LLC comes into existence and how it goes out of business. By following the correct steps for dissolution, you will ensure that you have satisfied all the debts and obligations of the company.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Collect a Judgment in Michigan if an LLC Is out of Business?

A limited liability company is a business entity that protects its owners, known as members, against personal liability ...

What Happens When a LLC Dissolves?

An LLC, or limited liability company, operates according to the statutory rules of the state where it is registered. ...

Can a Creditor Collect if an LLC Is Dissolved?

Circumstances might arise under which a creditor can collect debt from a dissolved limited liability company. As such, ...

How to Stop My LLC

The limited liability company is a popular business form because it offers owners the limited liability of a ...

Browse by category
Ready to Begin? GET STARTED