Can You Sue a Closed Corporation
Can you sue a closed corporation? Most states have statutes around claims against a closing or closed business.3 min read
Can you sue a closed corporation? Most states have statutes around claims against a closing or closed business. In most cases, even after the business is dissolved, it continues to exist for a period of time so that claims can be settled.
How Can I Avoid a Lawsuit Against My Closed Business?
Follow your state's dissolution notification procedures precisely and know the statutory limitations for filing a lawsuit against a closed business. In many jurisdictions, if you make proper notification to your creditors and the general public, you can limit the amount of time another party has to sue you. Failure to follow the statutes can extend that length of time significantly.
For example, some states have a law that following proper notification procedures limits the period of time for lawsuits to be filed to three years after the company's dissolution. Just in case, you should keep your corporate records in order, even after your business closes. These statutes can be complex, so it's a good idea to work with an attorney when you close a business. Even sole proprietorships, which are much easier to close, can benefit from legal advice during dissolution.
Things to Consider If Your Closed Business Is Sued
- If you receive a demand letter or any type of written complaint stating that you are being sued, don't contact the person suing you or that person's attorney. Contact your own counsel because you will probably need the help of an attorney to navigate your way through a lawsuit.
- If the person suing you or his or her attorney contacts you personally, it's okay for you to listen to what they say. Take careful notes of the person's name, how to contact him or her, and the type of claim they are making. Don't admit fault or try to make any explanations. Don't make any promises or give any information as to the current status of the business. At the end of the conversation, tell the person that your attorney will be in touch soon.
- If you were part of a business that manufactures products that can cause future injuries, you may want to consider setting aside part of the liquidation distribution until the time period for lawsuit filing has passed. With an incorporated business, a claimant can only sue you for what you received in distributions. This is a good point to keep in mind when you buy your commercial liability insurance policy.
- If you followed the notification statutes and the time period for filing suit in your jurisdiction has passed, your lawyer should be able to get the suit dismissed. You may even be able to reject the claim under state statute, forcing the claimant to take other action. If the claimant doesn't follow through within the allowed time period after the rejection, this is another grounds for your lawyer to get the suit dismissed.
- If you sold your operating assets to another entity prior to dissolution, that party may be liable for the lawsuit instead of you.
- Consult your commercial liability insurance policy and agent. It may cover the costs associated with the litigation.
- If you find there is no relief available, and it looks like your distribution assets are at risk, you have to decide whether the court fight is worth the cost. Sometimes it's better to settle if it's a clearcut case of corporate liability. The legal fees and your personal time significantly increase if a case has to go to court.
Can Someone Sue Me Personally After My Business Is Closed?
When you are ready to dissolve, if these three statements are true, it's unlikely that a former customer or client can sue you personally.
- Your business is in good standing with government regulators.
- Your company has no pending lawsuits.
- You followed the dissolution steps laid out in your state's statutes.
At a minimum, you don't have any increased personal exposure just because the business entity no longer exists. If you have maintained good records of board meetings, filed all the appropriate tax returns, and seen to the other administrative details of running a company, it's unlikely that a court will pierce the veil to hold you personally responsible for business debt. Of course, that is assuming you did not represent yourself as doing the work as an individual, rather than through your company.
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