Lawsuits against corporations are a fairly common occurrence.
A high-powered executive is found guilty of fraud. A restaurant is sued for an outbreak of food poisoning. A ski resort pays a hefty settlement to cover the costs of injuries caused by faulty equipment.
There’s really no end to these cases.
But what if someone sues a corporation after it closes its doors? Can you even sue a dissolved corporation? And does it make a difference whether the business dissolved willfully, or was forcibly dissolved by the state? In this guide, we’ll cover the basics of suing dissolved corporations.
Can a Dissolved Corporation be Sued?
In theory, a dissolved corporation can be sued. However, getting a lawsuit to stick is tricky. For one, each state’s laws allow a specific period of time for lawsuits to be brought against a dissolved corporation — typically, this is allowed for a period of up to three years.
If someone brings a lawsuit against the corporation after that period, the case will be thrown out.
If the corporation took the time to dissolve correctly, the court will likely throw out the case in this situation as well. These corporations have accomplished several key steps — they have notified their creditors and claimants of the dissolution, they have settled their debts and financial obligations, and they have also followed all of the state’s other requirements for dissolution. By completing these steps, a corporation limits most of its liability.
A lawsuit is much more likely if the corporation did not dissolve correctly. For example, if the corporation does not notify its creditors, then the window of opportunity to sue the business is much longer. Another reason a corporation might not notify its creditors would be to dodge paying them by dissolving. The corporation which does not follow proper procedures is easier to sue.
Can an Administratively Dissolved Corporation be Sued?
So far, we’ve covered procedures for suing a corporation which dissolved voluntarily, but there is another situation to consider: administratively dissolved corporations.
These are corporations which were dissolved by force by their state. Many administrative dissolutions occur because the corporation has failed to submit its annual reports or a similar requirement.
An administratively dissolved corporation is essentially in a state of flux: in a way, it is neither dead nor alive. This type of corporation cannot legally take any action except what’s necessary get reinstated.
This distinction confuses some people into thinking that an administratively dissolved corporation cannot be sued, but make no mistake: administrative dissolution in no way prevents lawsuits from being brought against your company.
But Is Suing Worth the Effort?
Suing a dissolved corporation is theoretically possible. But here’s the kicker: suing the business can be pointless if there are no remaining assets to go after. For example, if the corporation decided to dissolve because it went bankrupt, then it’s probably impossible to get any money to begin with.
Even if the corporation didn’t go bankrupt, the assets likely have already been distributed to the shareholders by the time a lawsuit gets to court, so the funds you were after may no longer be up for grabs.
In a few extenuating circumstances, you may be able to sue an individual shareholder instead. Typically, the shareholder to sue is someone who was an officer or director of the board. But for a lawsuit to pierce the corporate veil (and thus make that individual liable), that shareholder has to be found guilty of some sort of wrongdoing. This avenue is still tricky, but it is the most common way of getting a financial settlement from a dissolved corporation.
In general, individual owners can be sued if the corporation has fallen out of good standing with the state, if the company has pending lawsuits that it’s not cooperating with, or if the company did not properly follow the steps for dissolution outlined by the state.
Should You Hire Someone to Dissolve Your Corporation?
The dissolution process can be a bit complicated. While it would be great to hire a lawyer to handle your dissolution, attorney fees are expensive, and most businesses that are in the process of closing their doors don’t exactly have a ton of cash to throw around.
If you’d like some help with closing your corporation, there is another option: hiring a professional online service to handle the process. This tends to be a nice middle ground between the expense of hiring an attorney and the stress of dissolving your own corporation. Plus, nearly every service that offers business formation services also offers business dissolution services.
If this is an option you’re interested in, we recommend Incfile as our favorite company to provide this service.
The main reason we like what Incfile has to offer is the fact that they have amazing customer feedback. There’s thousands upon thousands of Incfile reviews all over the web, and nearly all of those reviews have very high rating scores.
There are few things we like more than seeing the combination of quality and quantity when it comes to client feedback, and Incfile has both of those characteristics in strong supply. We never hesitate to recommend their services, and we’re certainly not going to change that approach now.
If you don’t want to handle the dissolution process alone, but you also don’t quite have the budget necessary to hire a business lawyer, we think contacting Incfile is a solid option. Read our Incfile review if you’d like a peek at the kind of overall value they provide.
Suing a dissolved corporation is a tricky process, and sometimes, it’s not even worth the effort. Corporations can protect themselves from most litigation simply by dissolving correctly.
We hope this guide has given you a better sense of the procedures to sue a dissolved corporation. That said, we’ve barely skimmed the surface of this complicated issue. If you’d like further advice on suing or protecting a dissolved corporation from legal action, we highly recommend that you seek legal counsel.
Each case presents its own challenges, and a business lawyer can best help you with the unique circumstances you’ve encountered.