If an LLC is dissolved, can legal action be taken against former members for any unpaid debts to 3rd parties?

UPDATED: Mar 13, 2012

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If an LLC is dissolved, can legal action be taken against former members for any unpaid debts to 3rd parties?

The family of one of the members of our LLC “loaned” the LLC money. No note was signed regarding this loan. Some of the loan was paid off but not consistently. Now that member left the LLC suddenly and on bad terms. If we dissolve the LLC, can their family still sue us individually for any unpaid liabilities of this “loan”? Keep in mind there is no note signed it was a verbal agreement. The business has essentially failed and we have our own debts related to the business we are not asking them to pay.

Asked on March 13, 2012 under Business Law, Wisconsin


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

The members of an LLC would only be liable for debts of the LLC resulting from loans in the following cases:

1) The members can be shown to have personally guaranteed the loan.

2) The "corporate veil" can be pierced, and the LLC can be shown to have been basically a pretext, created or used to attempt to defraud creditors. This is very difficult to do and is very rare--it essentially never happens if the LLC was a "real" business. (Even though an LLC is not a corporation, since this doctrine developed first in the context of corporations, the term "piercing the corporate veil" is used for LLC's, too.)

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