You’d think that a corporation that’s already been dissolved can’t get sued anymore. But it’s not really a simple question at all. With this guide, this question gets a much clearer answer.
If you run a business, getting sued is part of the life you’ll face the longer your business exists. Customers, other businesses, your own employees, and even job applicants can file a lawsuit against your corporation.
Other companies may sue you for breach of contract, such as if you didn’t deliver the goods you promised or your business failed to pay for the goods you received. Other companies may also sue yours for having a logo that’s too similar to their own, or for other types of intellectual property issues.
If you have a physical location, then a customer or client can slip and fall in there, and sue you when they get hurt. If they get hurt in your premises because the customer thinks that you didn’t put in enough lights or enough security, a lawsuit may be forthcoming.
Your employees and customers can also sue you for breach of contract, harassment, or discrimination. Even the job applicants you didn’t hire may file a lawsuit claiming you didn’t hire them because of their gender identity, religion, or race.
All these are good reasons why you probably incorporated in the first place. By incorporating, you’re able to better protect your personal assets from these suits.
This leads us to the question of whether your corporation can still be sued once it’s already dissolved. Is that even possible?
So, Can Your Dissolved Corporation be Sued?
The short answer is yes. Technically, your corporation can still be sued even if it’s already dissolved. However, the longer (and more accurate) answer isn’t as cut and dried.
First of all, there’s a specific time frame that allows for others to sue your company after its dissolution. Each state has its own rules regarding this window of opportunity, but typically it lasts for 3 years after the formal dissolution. After that time has passed, then the claimant or plaintiff who tries to bring a lawsuit against your corporation is out of luck.
But even when the plaintiff files a lawsuit before the deadline, the court may very likely throw the case out if you managed to dissolve your corporation the proper way. That means that your dissolution process involves several crucial steps:
- You and the other owners and administrators notified your creditors and other claimants about the dissolution.
- Your business has settled all its debts and other financial obligations before dissolving.
- You have also painstakingly followed all the requirements of your state for corporation dissolution.
It’s only when you miss or neglect any one of these steps that the lawsuit against your dissolved corporation has a chance. Foolish as it may seem, quite a few corporations conveniently forget to notify their creditors about the dissolution. Perhaps the owners of these corporations thought that they can just present a fait accompli while thumbing their noses in glee at their creditors who come to get their money.
These owners are in for a rude surprise, since failing to notify these creditors actually make it easier for these creditors to sue these dissolved companies.
It’s very crucial that you dissolve your corporation properly. That’s why it’s just as important to obtain business dissolution services as it is to get business formation services.
What About Administrative Dissolution?
Normally, a corporation is dissolved voluntarily. But in some cases, the state can forcibly dissolve a corporation. This is called an administrative dissolution. These things happen when the corporation fails to meet certain ongoing requirements, such as filing its annual reports. It’s why you want your registered agent services to include help with compliance requirements.
If the state has administratively dissolved your corporation, then your corporation is like those undead wights north of the Wall in Game of Thrones. Your corporation is technically no longer “alive”, so to speak. But it’s not totally dead, either.
An administratively dissolved corporation can no longer take any sort of legal action. The main exception here is that they can still take legal steps that are necessary to revive the business back to its active corporation status.
Some people might think that because this type of dissolved corporation can’t take most legal actions, they can’t be sued. That’s not true at all. People can still sue an administratively dissolved corporation.
How much do you have to worry about when your corporation is sued? While facing a lawsuit isn’t really nice at all, in most cases, you don’t really have much to worry about. That is if you dissolved your corporation properly while complying with all the rules and regulations. If you dot the i’s and cross the t’s, you’re good.
In most cases, your business may not even have enough money to make it worth the effort for other people to go after your business assets. One common reason for dissolution, after all, is if your business went broke. If that’s the case, there’s no money left for these plaintiffs to go after. The lawsuits should disappear on their own since plaintiffs don’t usually like to pay expensive lawyer’s fees without a big payoff at the end.
Even if there were still some money left, once you’ve dissolved the corporation then that money would have been already distributed to the shareholders. If you’re one of the owners, that means the money becomes part of your personal assets, and that makes them safer. Don’t forget, protecting your personal assets is one of the main reasons for incorporating in the first place.
Of course, there are exceptions to every rule, and a plaintiff may still be able to come after you as an individual shareholder. You’re a more likely target for these suits if you’re a shareholder and if you’re also one of the board directors or company officers.
But for the lawsuit to stick against you, the plaintiff must be able to prove that you committed some sort of infraction or transgression. It’s still a rather iffy proposition, but this is usually the way that some suits are able to reach a financial settlement with a dissolved corporation.
Shareholders can also be sued for any of the following reasons:
- Your company didn’t follow all the required steps for dissolution as laid out by the state.
- There are still pending lawsuits against your company, and you’re not cooperating.
- Your business has fallen out of its good standing with the state.
Avoid all these pitfalls, and you ought to be safe. You won’t be able to stop determined plaintiffs from filing suit, but in most cases, these cases just won’t stick. All you need to do is to be on the up and up.
All these facts lead to a rather firm conclusion: make sure you dissolve your corporation properly. This is one fact you can’t ignore. Failure to do so leads to a lot of potential problems down the line. Lawsuits that would have been thrown out will become much stronger because you didn’t dissolve the corporation the right way.
So, for CYA purposes, do yourself a favor and obtain professional business dissolution services if you’re determined to dissolve your corporation. That way, forthcoming suits against your dissolved corporations are extremely unlikely to stick!