Judgment Enforcement And Dissolved LLCs
I am not an attorney, I am a judgment recovery 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 bad for everyone.
When an entity dissolves primarily to thwart a creditor, there is a chance for the creditors to get repaid.
You can verify the status of an entity on the web site of your local state's Secretary Of State office.
State laws, or local state's business corporation laws, usually define how an entity is formed, and the duties of all of its directors, officers, and shareholders. Also specified is the way an entity is formally dissolved, any possible liabilities, and its responsibilities to its shareholders and to its creditors, after dissolution. When an entity dissolves, it can become important to find the reasons it became dissolved.
One reason could be the entity had enough money, but forgot or chose not to pay the required fees, and was administratively dissolved by the state's Secretary of State office. Some entities run out of cash and fails to pay the fees, and becomes dissolved.
Another reason might be the entity chose dissolution by following the state laws to apply for, and be granted a certificate of dissolution.
How long an entity can stay 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 dissolutions are either covered by state laws, or a 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 you can no longer go after the assets of that entity. Even when a business is administratively dissolved, that does not mean it is no longer doing business.
Businesses can operate for years without applying for reinstatement. Being administratively dissolved does not mean the entity has no responsibility to pay their 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 the entity down. After this is accomplished, the former officers or their legal representatives, must 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, lawyers name entities in lawsuits without naming the individual shareholder or managing member that was responsible for the actions that led to thelawsuit to be filed against the entity.
Making an individual ex-officer personally liable as an additional debtor to the judgment against an entity is not trivial. One must provide a lot of proof that the individual performed acts that made them liable, and persuade a judge to sign a judgment.
Once it is proven to a judge that the corporate veil and protection that an entity offers, are evaporated because of the actions of an officer, that individual may be named and added to the cause of action, and become a judgment debtor in the final judgment. During a lawsuit, assets may be frozen, by the use of preliminary injunctions, and other prejudgment procedures.
Once a judgment is final, 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 liable becomes 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.
About the Author
Mark D. Shapiro - Judgment Referral Expert - http://www.JudgmentBuy.com - where Judgments go to get Purchased or Enforced!
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