If I own a construction business and some clients have sued for work done over a year ago, since the business is no longer operating would it be beneficial to file a business bankruptcy should anyone else sue?

Will I be in the clear? If I just dissolved my business would that work? I do not have the funds to pay these clients back. What would be my best option? The business was an LLC.

Asked on February 2, 2016 under Business Law, Pennsylvania

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

First, if the business was, as you indicate, an LLC, then you would not be personally liable for its debts or any judgments against it, at least so long as you did not personally guaranty them. You are not responsible for any amounts your LLC owes, whether due to lawsuits or otherwise. (There are a few very exceptions, which should not apply: you could be personally liable for any unpaid sales or payroll tax; and if the LLC can be shown to have been a sham, designed just to fool your personal creditors, or if they can show that you completely comingled LLC and personal funds, so there was no distinction between you and the LLC, they may be able to "pierce the corporate veil" and reach through the LLC to your personal assets.) So you could simply leave the non-functioning business as is and let anyone who sues it sue a "shell" without income or assets; or you could dissolve it, in which case they can't even file a suit--there would be no one to file against. There seems to be no need for a non-operational LLC to file for bankruptcy, and in any event, you can't "prospectively" file for bankruptcy, before the business is sued--bankruptcy only operates vs. debts or claims existing as of when bankruptcy is filed.


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