When A Business Dissolves

Submitted by Mark D. Shapiro | Category: Business | Published on May 02, 2011
When an entity is administratively dissolved, that does not mean a creditor can no longer go after the assets of that entity. Even when an entity becomes administratively dissolved, that does not mean it is no longer in business.

I am not a lawyer, I am a judgment referral expert (Judgment Broker). When an entity (a company, corporation, certain types of partnerships, or an LLC) dissolves for good reasons, for example they are actually going out of business, that is unfortunate for everyone.

When an entity dissolves just to stymie a creditor, there is a possibility for the creditor to get repaid.

You can check the status of an entity on the web site of your local state's Secretary Of State office. 

19378437 State laws, or the state's business corporation laws, usually specify how an entity is formed, and the duties of all of its directors, officers, and shareholders. Also specified is how an entity is formally dissolved, the possible liabilities, and its responsibilities to its shareholders and to its creditors, after dissolution.
When an entity dissolves, it can become important to determine the reason it became dissolved.

One reason could be the entity had enough money, but forgot or decided not to pay the required fees, and becomes administratively dissolved by a state's Secretary of State office. Other times, the entity runs out of money and fails to pay the fees, and gets dissolved.

Another reason could be the entity voluntarily agreed to dissolution by following the state statutes to apply for, and be granted a certificate of dissolution.

How long an entity can remain in business, after being administratively dissolved, varies by state. Some states have a statute of limitation and others do not. The dissolution procedures and laws sometimes vary, depending on whether the dissolution was voluntary or not.
Entity dissolution is either defined by state laws, or the state's business corporation laws. In the laws, are often ways for a diligent and persistent creditor to perform discovery.

When an entity is administratively dissolved, that does not mean a creditor can no longer go after the assets of that entity. Even when an entity becomes administratively dissolved, that does not mean it is no longer in business.  

Businesses can go on for years without applying for reinstatement. Becoming administratively dissolved does not mean the entity has no responsibility to pay its creditors, or that a legal action cannot be brought against it (and/or its officers) in a court.

A voluntarily dissolved entity is one that decided it no longer wanted to remain in business for any one of many reasons. It then followed all state and business corporation laws to properly shut down the entity. After this is done, the former officers or their legal representatives, will apply to the Secretary of State for, and be granted a certificate of dissolution. It is easier to form an entity than it is to voluntarily dissolve one.

FindLaw.com has a very handy state-by-state link to corporation laws and codes:  http://smallbusiness.findlaw.com/business-structures/business-structures-resources/biz-links-corporation-laws.html

Too many times, attorneys name entities in lawsuits without naming the individual shareholder or managing member that was responsible for the actions that caused a lawsuit to be filed against the entity.

Making an individual ex-officer personally liable as an additional debtor to the judgment against the entity is not trivial. One must provide a lot of proof that the individual committed acts that made them liable, and persuade a judge to sign a judgment.

Once it is proven to a judge the corporate veil and protection that an entity offers, are evaporated due to actions of an officer, that individual may be named and added to the cause of action, and become a judgment debtor in the resulting judgment. During a lawsuit, assets may be frozen, by the use of preliminary injunctions, and other prejudgment remedies.

Once a judgment is awarded, adding the individual responsible is not an easy task. Often times, the expenses involved make it discouraging. At other times, all previous assets are long gone, and the individual involved makes themselves judgment-proof.

Absent a court order to the contrary or a personal guarantee, an individual is never liable for an entity's debt, either in or out of business.

Mark D. Shapiro - Judgment Referral Expert  - where Judgments go to get Purchased or Enforced! 


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