Can You Get Sued After Closing Your Business in Minnesota?

Can you still get sued after you close your business? Yes. Closing a business and closing out liabilities are two different events, and only one of them happens because you stop showing up. If you're holding a letter from a debt collector for a company you shut down three years ago, that letter is probably not a mistake. I'm Andrew Ayers, a business attorney and counselor, and here's how long you actually stay exposed, and the one thing that can shorten it.

So the company itself can be dissolved, and the claims can still be alive. Those are two different questions with different answers. If you have a dissolved LLC, it doesn't actually vanish. It continues for the purposes of winding up, and during the time it's winding up, it can prosecute and defend against lawsuits. It's a version of the company that still exists, but it's specifically made to be sued and to defend itself. That surprises a lot of my clients, and it's what we're going to look at in the next few minutes.

There's one clock that's actually running, and here's the number that matters. For most contracts in the State of Minnesota, it's six years, and it runs from when the claim came up, not from when you closed your business. So what we're looking at is what we call a statute of limitations, and it's set at six years for an action based on a contract or other obligation, and that's whether it's express, meaning it's written down, or whether it's implied. It's four years if it's for the sale of goods, and it accrues, which means it starts, when the breach occurs, regardless of whether you know about it. Parties can shorten that to as little as one year, if that's what your contract says, but you can't extend beyond that six years.

Closing the business does not touch these clocks. If you have a 2024 unpaid invoice, it's still going to be live until 2030, whether your company's open, dissolved, or administratively terminated. Say you closed your business in 2023, but you have a supplier's claim that accrued in 2022. That's going to be alive until 2028. Shuttering your doors in 2023 did nothing to stop it.

Notice is the one lever that you have here. It's the one thing that will shorten that window, and it's not automatic. It's your company telling people you've dissolved. That's the notice. So a dissolved LLC will send a record describing what a claim must contain, where it's to be sent, and a deadline of at least 120 days. And if that creditor misses the deadline, they can't bring it up against you. If the company does receive a timely claim and the company rejects it, then that creditor has 90 days from receiving the rejection to bring a lawsuit. Everyone else is by publication. You publish notice of claims, and those claims are barred unless they bring an action within five years after the publication. So you can see, already we've dropped that six years down to five with that notice.

None of this happens on its own. Administrative termination publishes nothing, doesn't mail anything. The 120 days never starts, the five years never starts, and you're left with the full six-year contract clock from the beginning. Done right, you can turn a six-year exposure into 120 days for the creditors you know about. Done by walking away, you get none of those protections.

Many people ask me, "I've got a business. How does any of this affect me personally?" So what everybody worries about is called piercing the corporate veil. In Minnesota, that's the hardest way to get to you, and it's rarely how it happens.

So as a broad concept, we have what we call the corporate shield, and that says the LLC's debts are not your debts just because you're a manager or a member. And failing to observe the formalities that relate only to internal management is not a ground for liability. The statute says the veil-piercing case law carries over. So the standard has two prongs: a number of relationship factors, plus a separate showing of injustice or fundamental unfairness. We have a classic case called Victoria Elevator, and it's expensive to prove. That's not where most cases go.

Here's where people actually get reached, and every one of these is something you did, not something you forgot to file. Number one: you signed a personal guarantee. The most common one by far. A promise to answer for somebody else's debt has to be in writing and signed. And let's say you just started out your business and you signed a personal guarantee on behalf of the LLC. Oftentimes it's going to be for that office rent, because your LLC didn't have a credit history. Landlords, equipment lenders, lines of credit. That's where you'll find these.

Number two: your own conduct. So if you've done things personally, the entity doesn't insulate you from your own torts. So if you're acting on behalf of an LLC, but you punch somebody in the face, the LLC's not going to protect you from a lawsuit.

Number three is sales tax and withholding. So the person who has control, supervision, or responsibility for filing and paying the taxes is personally liable for unpaid amounts, plus penalties and interest. Owners of a closed business are routinely blindsided by this one, and it has nothing to do with the corporate veil. Number four could be money you took out of the business. Consent to a distribution that shouldn't have been made, and you're liable for the excess amount. An action is barred if it's not commenced within two years of the distribution, but this can also be a way to trip people up. And number five, we have money taken out after dissolution. So people could still go after it, but it's going to be capped at what you actually received.

Four of those five are avoidable if you wind up in the right order. Pay the claims before you pay yourself.

So what should you do if you've already walked away from your business? You can't start the clock retroactively, but you can still start today, and you can stop the bleeding.

Number one: do not ignore that letter. A lawsuit served to a registered office you've abandoned can produce a default judgment you never hear about until it's on your credit report. So make sure you're keeping things up to date. Number two: don't pay, and don't promise anything yet. Keep it short and non-alarmist. Find out whether that claim is even still within the statute of limitations before you engage with it.

Number three: find out what the claim actually is and when it accrued. We want to make sure, again, that we're within the right time period. Number four: check to see if you personally signed anything. Leases, check the credit applications, check whatever documents are in place. This is the question that settles most of these. Many times people sue you individually, even though you didn't have a personal guarantee, and you can quickly get removed from the lawsuit by filing a motion to dismiss.

Number five: check your tax accounts, sales and withholding specifically. This is the one people don't think to check, and it's the one that really will follow you wherever you go. And number six: make sure you're winding up properly. If that's what you're looking to do, make sure you do it correctly. You can reinstate the business first, give notice to the creditors. It won't reach back to the past, but at least it gets the clock going, and you'll have an end date for all of these.

You've probably got more questions, and when it comes to dissolving LLCs, it's very frequently what I'm addressing on the phone with clients. So if you want more information or you want to have a call, you can head to my website, AndrewMAyers.com. There's a red scheduling button on the front page. We can set up a phone call to discuss you and your business, where you are in the process. If you liked the video, you can hit the like or thumbs-up button below. You can head over to AyersLawTV.com or YouTube to subscribe for future episodes.

And remember, if you're going to close your business, we want to do it correctly so you're not getting sued after the business has been closed.