Can I Sue a Company That Has Been Dissolved?
Yes, in certain circumstances. You may be able to sue a dissolved corporation or a dissolved limited liability company for a period of time after dissolution, especially if it failed to wind up its business and dissolve properly. And if the company no longer has assets or an insurance policy to go after, you might be able to sue the former owners.
But whether it's worth it, however, is a question you will want to take up with a business attorney.
A Business May Close and Still Owe You Money
Suppose you are a server at a restaurant. You show up to work one evening and find that the doors are locked. You call your manager to find out what's going on, and your boss tells you that the business has closed up shop, the company dissolved, and they have no idea where the owners have run off to. You are left wondering how you're going to get your final paycheck. That is, if you'll get your check.
Or suppose you're a car manufacturer. You place a multimillion-dollar order with a parts supplier and the parts don't show up on time. You try to find out what the hold-up is, only to learn that the supplier you trusted dissolved and the parts you need aren't coming. You are forced to shut down your production line while you search for another supplier, losing millions of dollars in the process.
What should you do? Don't panic. You may still be able to recover from the dissolved company.
What Is a Dissolved Company?
They generally serve the same purpose, which is limiting the personal liability of the investors in a business. There are a lot of differences between how they operate and the rules that apply differ. But for our purposes, we will refer to each of them as a company.
“Dissolution" is the process by which a company's legal existence ends. It's also governed by state law.
Voluntary Dissolution Process
Generally, the voluntary dissolution process involves seven steps for a company in "good standing."
Good standing means they file the proper tax returns, annual reports, and otherwise comply with state law.
These steps typically include:
- Deciding through a proper vote of the shareholders or members to dissolve
- Filing a notice of an intent to dissolve with the secretary of state
- Sending or publishing notice to creditors
- Selling off company property (liquidation)
- Paying off the company's debts to claimants
- Making distributions of any remaining assets to the shareholders or members
- Filing dissolution papers with the state
When Can I Sue a Dissolved Company?
The general rule used to be that when a company dissolves it no longer legally exists. That means you could no longer sue it. But over time, at least two exceptions to this rule have evolved.
Exception One: The Company Failed to Dissolve Properly
The first exception is when a company fails to dissolve properly. This is not that uncommon, particularly if the company:
- Is owned by a sole proprietor
- Has just one or two investors
- Failed to follow legal advice
- Needed a lawyer and chose not to use one
You have to follow the rules governing the dissolution process, and the people responsible for it might make all sorts of mistakes. For example, they might:
- File the wrong forms (e.g., sometimes people file notice of an intent to dissolve but neglect to file actual articles of dissolution)
- Intentionally or unintentionally fail to properly notify creditors of its intent to dissolve
- Fail to follow the terms of an operating agreement when winding up the business
- Pay off the wrong claims by creditors
- Distribute money or property to company investors before paying off all valid creditors' claims
- Fail to submit the proper fee
Dissolving a company is easier said than done. If you believe you were wronged by a company and find out that it has since dissolved, consider consulting with a business lawyer as soon as possible. You may still have time, depending on state law, to sue it.
Exception Two: You Have a Claim for Personal Injury That You Didn't Know About
A second possible exception depends on the nature of the claim. Some states allow for lawsuits against even properly dissolved companies for a time if the claim involves personal injury.
Sometimes you develop an injury and don't know or find out about it until after the company that caused it dissolves. Or sometimes you develop an injury years after a company actually caused it, which can happen in a product liability context. In such instances, some states give you time to file suit against a company, even if it has properly dissolved.
If you learn you are injured, and believe a dissolved company may have been responsible, you should consult with an experienced personal injury attorney as soon as possible.
Is Suing Worth It?
You will want to ask your business law attorney one critical question: Is suing worth it?
There are several reasons why someone may not want to file a lawsuit against a dissolved company, even if they have a claim. Litigation is expensive. It's time-consuming. Stressful. It can involve a lot of work. You might lose. And presumably, the business ended because it failed. It may not have any money to pay your claim.
So unless you find yourself in one of two situations, it may not be worth it to file a suit.
You May Want To Sue if the Dissolved Company Had Insurance
Commercial liability insurance protects a business for property damage and personal injury caused by a business's services, operations, or employees' negligence. If a company had commercial liability insurance during the time it was operating, you may be able to recover money the company owed you from the company's insurance carrier.
You May Want To Sue if the Investors Have Money
The second situation is if the investors of the dissolved company have money. Generally, the investors in a company are not personally liable for the debts of the company. As noted above, companies are legal entities in their own right, separate and apart from their investors. So as a separate entity, the company is responsible for its own debts. If you get a judgment against a company that has no money, you generally are out of luck.
But there is an exception to this rule. In certain rare instances, a court might disregard the fact that companies are independent entities and impose personal liability on a business's investors. Lawyers call this “piercing the corporate veil."
Generally, courts will look for two factors:
- The company did not really function as a separate entity (e.g., failed to follow corporate formalities, lacked sufficient money to run the business, the owners mixed personal and business funds, etc.)
- The company engaged in wrongful or fraudulent behavior, and fundamental fairness requires the business's investors to pay for it
Veil-piercing cases are extremely complicated and hard to win. So if you get a judgment against an insolvent company and want to go after the business's owners, you will want to get legal help from an experienced business attorney.
If You Believe You Have a Claim Against a Dissolved Company, Speak With a Lawyer
If you have a claim against a dissolved company, do not fear. You may still be able to sue. But as we have discussed, these cases get very complicated and can be expensive to litigate. So consult an attorney to see what your rights are and discuss whether it makes sense in your circumstances to bother with a lawsuit. Many lawyers offer a free initial consultation.
And act quickly. You have a limited time under state law in which to sue.