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10 Things to Think About: Being Sued After You Close Your Business

Business owner signs paperwork to close their business.

You closed your business and paid your creditors. You probably thought, "that's the end of that," and moved on to other endeavors. Well, maybe not.

If you have products out there that can cause injuries, among other potential liabilities, you could be involved in a lawsuit long after you have closed your doors.

It's always a good idea to work with a lawyer when closing down your business (although sole proprietorships are much easier to shutter), which can help you avoid post-dissolution lawsuits in the first place.

Things To Consider About Post-Dissolution Lawsuits

1. Get a Lawyer to Handle Communications

You will probably not be able to handle a lawsuit without the assistance of an attorney. Do not contact the plaintiff or the plaintiff's attorney when you receive a complaint or another type of legal document that indicates that you are being sued. You only want to contact your own attorney.

If an injured person or the person's attorney contacts you directly, you should listen and take notes. Do not admit fault. Do not explain changes that were made to the product. Do not make promises. Do not detail the current status of your business. Your best strategy will be to take the person's name, contact information, and the nature of the claim and inform them that your attorney will contact them.

2. Follow Dissolution Notification Procedures

Exactly follow the dissolution notification procedures outlined in your state statutes. In many states, if you notify creditors and the public, you will limit the amount of time in which a person who is later injured may bring suit. If you do not follow notification statutes, the time in which a person can bring a lawsuit against you will last much longer. For example, your state may have a law that says, as long as you follow notification procedures, you can only be sued for three years following your dissolution.

3. Keep Records In Order

After your business has closed, keep your corporate records in order. Most states have laws that deal with disposing of claims against a dissolving or dissolved company. In most cases, even after the business is dissolved, it will continue to exist for the purposes of settling claims.

4. Understand Time Limits

Determine the statutory time limitations for bringing a suit against your business.

5. Save Money for Lawsuits

If you were involved in a business that manufactured products that may cause future injuries, strongly consider reserving a portion of your liquidation distribution for the time period during which a person can bring suit. If you were incorporated, the claimant would only be able to recover what you received in distributions. This is also an issue that you might want to consider when purchasing commercial liability insurance.

6. Plan for Case Dismissals

If you followed the notification statutes and the time periods for bringing suit against you have expired, your attorney should be able to get the lawsuit dismissed.

7. Plan for Claim Rejections

Your state may have a statute that allows you to reject the claim and force the claimant to take further action. In this case, if the claimant doesn't take further action within a specific time period after their claim is rejected, the claim will not be allowed, and your attorney should be able to get the suit dismissed.

8. Keep Records of Asset Sales

If you sold your operating assets to another business or individual before you dissolved, they might be liable to the injured party instead of you.

9. Understand Insurance Policies

Your commercial liability insurance might cover the costs associated with the lawsuit. Check your policy and contact your agent. You want to make sure your insurance carrier receives notice of the potential claim as soon as possible.

10. Consider Settlements

If there is no relief available, and it looks like you will lose your distribution in a lawsuit, you should determine whether it is worthwhile to battle it out in court. In many instances of clear corporate liability, a settlement will be less costly. Taking a case to court will dramatically increase legal fees and will probably require your personal involvement.

Have You Been Sued After Closing Your Business? An Attorney Can Help

Just because your business no longer exists doesn't mean people can't sue you and the other founders or officers.

Each type of business structure has certain liabilities, whether a sole proprietorship or a corporation, so it pays to understand your legal exposure when a lawsuit is filed against your defunct business. Find a qualified small business attorney today for a consultation.

You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help

Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.

Or contact an attorney near you:

Next Steps

Contact a qualified business attorney to help you tie up all loose ends when closing your business.

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