Can I Sue a Company That Has Been Dissolved?

When businesses dissolve, they no longer exist as a legal entity. But there are situations when suing them is still possible. If the company no longer has corporate assets or an insurance policy to go after, you might be able to sue the former business owners.

Whether it’s worth it, however, is a question you will want to take up with a business attorney. They can advise you on how to recover what the company would owe you, if possible.

A Business May Close and Still Owe You Money

In general, business owners are not able to simply skip out on a bill by shutting down. While closing, their business is supposed to complete a process to settle debts and sell off its assets. But sometimes, there are situations in which a business still owes you wages, payments, or damages despite its closure. 

For example, suppose you are a server at a restaurant. You go to work one evening and find that the doors are locked. You call your manager to find out what’s going on. They tell you that the business has closed up shop, the company dissolved, and they have no idea where the owners went. You are left wondering how or if you’re going to get your final paycheck.

As another example, imagine 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.

You may still be able to recover from the dissolved company.

If the company hasn’t yet fully dissolved, you can also consider whether to sue after you quit or after the company was sold. 

What Is a Dissolved Company?

A dissolved company is a former business that no longer has a legal existence. In other words, the business operations have not only shut down, but the entity itself is gone.

Let’s start at the beginning. A company is a legal entity created by state law.

In essence, there are two types: a corporation and a limited liability company (LLC). In general they 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, 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.

How a Company Dissolves

Generally, the voluntary dissolution process involves seven steps for a company in good standing.

Being in good standing means they filed the proper tax returns, annual reports, and otherwise complied with state law.

These steps often include:

1. Deciding through a proper vote of the shareholders or members to dissolve
2. Filing a notice of an intent to dissolve with the secretary of state
3. Sending or publishing notice to creditors
4. Selling off company property (liquidation)
5. Paying off the company’s debts to claimants
6. Making distributions of any remaining assets to the shareholders or members
7. Filing dissolution papers with the state

When Can I Sue a Company That Went Out of Business?

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 as part of the winding-up process. This is not that uncommon, particularly if the company:

• Is a sole proprietor
• Is an LLC with 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)
• Failure, either intentional or unintentional, 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 the state statute of limitations, 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. Other times you may develop an injury years after a company 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

The first situation is if the dissolved company had an insurance policy. Most businesses obtain insurance, including commercial liability 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. In general, 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. Considered a separate entity, the company is responsible for its own debts. If you get a judgment against a company that has no money, most times you’ll be out of luck.

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, such as LLC members. Lawyers call this “piercing the corporate veil.“

In general, 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, or board of directors did not function independently, 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 complicated and difficult to win. 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. 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.