Can You Sue a Business That Has Gone Out of Business?
Businesses close for many reasons. Most of the time, it’s simple economics. After having trouble staying in the black, it’s time to close the doors. Other causes may include litigation, owner disputes and difficulty with resources. Regardless of the type of business or why you’re closing, you must follow established procedures. Unless you follow the right steps, you and any other owners could be sued even after going out of business.
Suing a Company That No Longer Exists
If you’re hit with a lawsuit after closing your business, it’s essential to speak to an attorney experienced in Pennsylvania business law. Your lawyer is the only person you should talk to about the lawsuit. If the other party’s attorney tries to contact you, politely collect their contact information and pass it along to your lawyer. Do not answer any questions, divulge any business information or discuss anything if contacted. They may try to gather information to use against you.
People can sue a business that no longer exists based on individual motivations. Often, it’s over debts. Closing a business limits new obligations but will not erase your existing ones. Partners suing one another is another reason, typically employed as a bargaining maneuver when partners press each other for better settlements. Other liabilities can resurface, and you’ll want a lawyer who knows how to proceed.
Dissolving, Winding-Up and Closing
Suing a dissolved corporation is possible because the company still legally exists. Dissolution is only the first step. Regardless of the legal structure of your business, you must follow the proper procedures. DBAs and sole proprietorships have fewer steps to follow but are not immune to lawsuits.
The primary steps for closing a business include:
Dissolving a Business
For corporations, LLC and partnerships, the first phase of closing a business is dissolution. In Pennsylvania, articles of dissolution must be sent to the Department of State, Corporation Bureau. Other states have prescribed procedures that typically involve notifying their Secretary of State’s office. A dissolved corporation continues to exist as a legal entity, affording the same liability protections to owners as before.
Businesses are under obligation to pay their creditors, especially before distributing assets among owners. Diverting assets to purposefully avoid creditors can lead to lawsuits for fraudulent conveyances. The winding-up phase involves a full reconciliation of financial claims made against the company. It’s essential to address all claims during this phase to avoid facing personal liability for them after the business no longer exists. When the company is insolvent the directors or managers may also have fiduciary liabilities to creditors as they wind-up the business. The winding-up phase is an excellent opportunity to develop strategies for deflecting future lawsuits. Speak to a lawyer for help completing the winding-up process.
Closing a Business
Closing a business is the final phase in the process, but owners can still face legal troubles due to missteps in the procedure. Closing a business cancels its existence as well as any legal protections it may have previously offered. At this point, any legal claims made against the company will fall to the owners. Talk to a lawyer if you’re facing a lawsuit, especially in cases where more than one owner is involved.
Can I Be Sued?
Depending on the circumstances, you can be sued after the business is closed. In Pennsylvania, the statute of limitations for filing claims against a company can vary, but in most cases, it ends after a maximum of four years. Be sure to check with your state and retain all your business records for at least that amount of time. Generally speaking, you can face litigation after your business has closed for:
- Outstanding debts: Your business closed with outstanding debts that must be paid.
- Fraudulent conveyances: Your business diverted assets to insiders that should have been used to pay creditors.
- Breach of fiduciary duty: Directors or managers of your company did not take proper steps to protect the claims of creditors while the company was insolvent and winding-up.
- Personal injury: You manufactured products alleged to cause future harm.
- Internal disputes: A partner or board member claims fraud or misuse of funds.
- Improper procedure: You do not follow all procedures for closing your business.
Contact Pennsylvania Business and Commercial Lawyers
If you’re closing a business, contact an attorney to ensure you’re making the right moves. Whether you’re taking proactive measures before closing or responding to a lawsuit, you need a lawyer who understands what you’re facing. Schedule a consultation for guidance through the closing process and for help responding to business lawsuits. To speak to an attorney at MPL Law Firm today, call 717-845-1524.