Dissolving An LLC, and Liability Issues

[SChinFChin]

I had a business in an LLC, in NY, which was sold a year ago, February 2007. Currently the issues are:

- There was a serious accident, in Aug 2006, and a former employee's was seriously injured, his attorney filed a notice to sue, last October. Although state worker's comp laws bar a lawsuit against my company, my attorney correctly guessed this employee will sue someone else, like my landlord, and then, have this third party pull me in, as co-defendant. The landlords' insurance company, and mine was notified, though my insurance called to say my policy does not cover employees as workman's comp is supposed to. I heard nothing since Oct 2007.

- There's a few oustanding bills, 4 of them, but I do not intend to put additional funds into the defunct business. It amounts to a few thousand dollars. Two of the bills was never even changed into the name of my company, still under the name prior owners, for various reasons, and one of these two bills, the phone bill, was assumed by the new owner. who then disputed the bill.

I spoke to my attorney, and he advised:

1. Keep the LLC open for the forseeable future. Though not 100% certain, feels dissolving the LLC would eliminate the liabilty shield, and creditors can then come after me personally.

2. Tells me I have no obligation to answer summons if creditors sue under the names of the prior owners. Thus far, I avoided all contacts with collection agencies that called my home.

3. To analyze all of issues completely, if need be, he'll need to spend a few hours of research, and as a rough guess, will bill me about $700.00.

4. I planned to close the bank accounts, to avoid service charges and surprises. Afterwards, I plan to pay fees with money orders, if needed.

I spoke to my CPA, and we're leaning towards:

1. Filing the final tax returns, state and federal, for the year 2007.

2. Continue annual filings for the LLC, to keep it active, checking off "not active", and thus skipping the annual $500 franchise fee.

Questions:

A. Does it make sense to spend more money on my attorney, $700 to research, or just simply wait for someone to sue??

B. Are there any issues my attorney or CPA overlooked??

C. Any need to file bankruptcy, or just wait and see??

[Mr. Knowitall]

It's up to you to decide if you want to pay for more advice up front or wait to see if you are sued. There may be issues that your lawyer missed - that's why he wants the $700, to look more deeply at the issues. If you do not have personal liability for these debts and obligations, something your attorney would help you figure out, bankruptcy should not be necessary - the business is insolvent and, absent personal liability, you would not be not liable.

In wrapping up the business, if (for example) you pull money out of the business accounts and put it into your own, or if you make business assets part of your personal estate, it's possible that business creditors will try to pursue those assets.

[SChinFChin]

Thanks, Mr. KnowItall.

My attorney said generally, his understanding is that if a business entity, being a Corp or LLC is dissolved, with pending lawsuits, and debts, the liabilty falls on a shareholder or member. I posted a query on some other forum, and someone responded that when he dissolved his C Corp, he had to declare "the party who will be responsible for the Debts" of the C Corp if debts or liabilities materialized. Presumably, there might be such an declaration I have to make if an LLC is dissolved.

Fortunately, my CPA did some research for me and found no franchise taxes are due from an inactive LLC's in NY, and all I had to do is the file an annual statement, check off the box that says "inactive".

My attorney advised that as far as he knows, if annual filings for LLC's and Corp's ar not done, the state will declare the entity terminated. In that case, filing paperwork for dissolution may be redundant.

So I concluded rather than pay him $700.00, all I'll just continue my annual filings for the LLC, checking off the "inactive" box, and see what happens.

Since the sale of the business, the LLC has no assets, with an ending "negative equity" balance.

As to taking funds out, the attorney structured the payment to me for the business in two steps. The note from the buyer is given to the LLC. It is then assigned to me in payment for loans I made to the business.

I posted this question to see if there are any other major issues the attorney, the CPA, or I missed.

Finally, I owed none of the debts personally, and he doubted my former employee would sue me personally. There's even the question that he can even sue my company at all with "workman's comp" in place.

As I mentioned, two of the major bills were never even billed to my company. According to my attorney, I should not even answer the summons if sued.

My dad had a similar problem as creditor. He rented a store to a business, but unbeknownst to him, the business was sold four times in 10 years. When he tried to sue the last tenant for the back rent, turned out the lease was under the name of the original company from 10 years ago, with the peronal guaranty of that owner. Unfortunately, the owner since moved and left the country.

My dad's attorney told him not to waste his time, as he's out of luck as he never entered into a lease with the current tenant.

[Michele Peters]

Being that this discussion dates from a few years ago, I wish to update the information for New York State as of July 23, 2010.
A limited liability company may dissolve by filing with the Department of State Articles of Dissolution pursuant to Section 705 of the Limited Liability Company Law. The form may be obtained by calling 518-473-2492.
I discovered today that the form is missing from their website but I placed a formal request asking that a link be provided on the website.
The fee for filing the Articles of Dissolution is $60.00, made payable to the Department of State.
The completed certificate and filing fee should be forwarded to the Dept of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Suite 600, Albany, NY 12231.

[SChinFChin]

Being that this discussion dates from a few years ago, I wish to update the information for New York State as of July 23, 2010.
A limited liability company may dissolve by filing with the Department of State Articles of Dissolution pursuant to Section 705 of the Limited Liability Company Law. The form may be obtained by calling 518-473-2492.
I discovered today that the form is missing from their website but I placed a formal request asking that a link be provided on the website.
The fee for filing the Articles of Dissolution is $60.00, made payable to the Department of State.
The completed certificate and filing fee should be forwarded to the Dept of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Suite 600, Albany, NY 12231.

The link is defective. If you are in need of this form, it is available at this link:

http://www.docstoc.com/docs/3292201/...orations-State

And further, this form can be found at various sites by googling for "DOS Form 1366". See this:

http://www.google.com/search?source=...AAAKoEBU_QSN5j

As I also recall, most NY state forms are available via fax as well, though I haven't gone that route for a while since the internet was invented.