If my small business is currently being sued but we don’t have money to keep the business due to the lawsuit, what happens with the lawsuit?

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If my small business is currently being sued but we don’t have money to keep the business due to the lawsuit, what happens with the lawsuit?

I own a small business and we are currently getting sued. However with the lawsuit, all my money has gone to pay for lawyer fees that I must close my business. If this is a corporation, what happens next? How does this affect us business owners?

Asked on August 11, 2011 California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

To oversimplify: if the business is a corporation and you are the owner, you are *not* liable for its debts or for a judgment against it. In theory, you could simply "walk away from" the business and leave all creditors, including anyone suing you, hanging.

There are some exceptions: if you personally did the act resulting in liability (e.g. you personally defamed someone, or drove the company car that hit someone), you could be sued personally for your own act or involvement. Certain tax and wage obligations will attach to owners. If you personally guaranteed any debts, like a line of credit, or have a "business" credit card in your name, you're likely liable on those. You should discuss the matter with your attorney to make sure that you don't face personally liability--and not just from the lawsuit, but also from other debts; if this isn't one of the cases where you might, you could safely close the business and walk away from it.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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