Key Takeaways:

  • A contract with a dissolved company typically remains legally valid unless there are termination clauses or other dissolution-related stipulations.
  • Lease agreements, in particular, do not automatically end upon dissolution and may include penalties for early termination.
  • Dissolution does not eliminate obligations; creditors may still pursue payments unless bankruptcy is filed.
  • Laws for suing dissolved companies vary by state; often, there is a limited timeframe (commonly three years) for initiating lawsuits.
  • Dissolution procedures, such as filing articles of dissolution and public notifications, impact a company’s contractual obligations and liability.
  • Intellectual property agreements may be impacted during dissolution if assets are sold without securing associated licenses or rights.
  • Hiring an attorney is advisable to navigate complexities, especially for understanding rights related to leases and intellectual property.

If a contract with a dissolved company exists, the contract will stay legally valid. The only exception to this rule is if there was a lease termination clause negotiated into your contract that specifically addresses your business closing. Dissolving a company will not terminate any lease the company has including those for a real estate property, company vehicles, or other creditors.

Contract Terms for Dissolved Companies

If the contract does not include clauses related to exercising an early termination clause, there will be consequences. In some cases, the contracts will include clauses that lay out the expected penalties and fees related to early termination. In real estate, the penalties and fees are applied to compensate for the time and expense it will take to find a new tenant for the property. While the cost of the penalties and fees may be high, in some instances it will be less than the cost to finish out the contract.

If the lease does not involve include a penalties and fees clause, or you fail to pay the penalties and fees listed in the contract, legal action can be taken to enforce that the remainder of the lease is paid. The contract legally obligates you to satisfy the terms of the lease, and the courts are more likely to side with the lessor even if you are no longer using the property for business purposes.

If you are financially incapable of paying the lease provisions that you are obligated to pay, a business bankruptcy may be considered. The type of bankruptcy that is filed will depend on the business type. Businesses that are closing are limited to Chapter 7 which will erase the majority of the business debts. Farms or fisheries would normally file for Chapter 12 bankruptcy protection.

Lease and Rental Obligations in Company Dissolution

When a company dissolves, its lease obligations generally continue unless specific clauses permit early termination. Lease agreements, such as for office spaces or equipment, remain valid even after dissolution, and tenants may be liable for rent payments. In some instances, landlords may permit re-negotiations or settlement agreements to allow a dissolved business to vacate early, but these adjustments often include additional penalties or fees. For companies unable to meet these payments, filing for bankruptcy can offer relief by potentially discharging the remaining lease debt. Consulting a legal expert is crucial for understanding the options available based on the lease's terms and applicable state laws.

Lawsuits and Dissolved Companies

An LLC, or Limited Liability Company, is a legal business entity that is separate from its owners who are called members. This gives the members personal liability protection in the same way corporations work. At the time of formation, the articles of organization must be filed with the state business registrar. At the time of dissolution, the articles of dissolution must be filed to formally dissolve the corporation.

The ability to file suit against a dissolved corporation will depend on a variety of factors including:

  • The laws of the state where the LLC was formed.
  • If the company followed the proper procedures to dissolve.
  • The length of time that has passed from the time of dissolution.

If the LLC has ceased business but not formally dissolved, it can be sued until they follow the legal procedures. LLCs must follow the laws of the governing state, and they vary by state. The state laws also include rules related to suing dissolved LLCs. Due to the changing variables, a lawyer is recommended if a lawsuit is filed against a dissolved LLC.

If the LLC follows the proper procedures, and the company is dissolved legally, the time allowed to file suit is limited and will eventually end. In many states, this timeframe is three years. At that point, the LLC is considered canceled, and no lawsuits can be filed. In some states, the timeframe to file suit is in conjunction with the public notification requirement. The public notification must be placed in a newspaper and include:

  • A declaration that the company is going out of business.
  • The date of closing.
  • An address to file a claim.
  • If required, the last date when a suit can be filed.

The notification, depending on the state, may need to be published more than once.

If a suit is filed within the approved timeframe, other obstacles that may occur include:

  • Facing a limit to how much money can be received in a judgment.
  • Only being able to collect from any assets that have not been distributed or assets that members received after liquidation.

If the LLC members have engaged in wrongdoing, an attempt to remove the liability from the members is possible. Piercing the corporate veil is only allowed in very specific situations such as fraud. If successful, the member's personal assets may be seized to fulfill the judgment.

Impact of Dissolution on Intellectual Property Contracts

Dissolution can complicate intellectual property (IP) contracts, particularly if the company holds copyrights, patents, or trademarks under a licensing agreement. In cases where IP assets are sold to third parties during liquidation, the validity of associated licenses must be considered. If a license or IP-related contract is still active, buyers of these assets may need to adhere to existing agreements. Failure to address these terms may lead to disputes, especially if a contract allows the license holder rights to continue usage. Careful coordination between liquidators, buyers, and IP licensees can prevent future legal complications by ensuring that all contractual rights are respected during the sale.

Handling Contracts During the Liquidation Process

The liquidation phase of a dissolved company often involves addressing existing contracts, including ongoing service agreements and vendor partnerships. Liquidators, appointed to handle the dissolution, have the authority to negotiate, terminate, or fulfill these agreements to settle outstanding debts. However, a liquidator's primary responsibility is to creditors, which means not all contracts are honored. For example, contracts that do not bring value to the estate may be terminated, with creditors having priority over other claimants. This approach ensures that a dissolved company’s assets are appropriately distributed among creditors. If you are a creditor or party to a contract with a dissolving company, seeking legal guidance can help you understand the likely outcomes and possible claims.

State-Specific Time Limits for Suing Dissolved Companies

Most states enforce a limited timeframe during which creditors or other parties can file lawsuits against dissolved companies. This period, commonly three years, varies by jurisdiction. Once this period expires, claims against the dissolved entity are typically barred, providing closure to the company’s members or shareholders. Additionally, some states require companies to notify the public of their dissolution by publishing a formal announcement, which includes deadlines for claims. This process helps protect the dissolved entity from future litigation. If you have a contract with a company that is dissolving or has recently dissolved, it's advisable to act promptly and consult an attorney to understand any remaining rights to pursue claims.

If you need help with dealing with a contract with a dissolved company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.