Legal Question in Business Law in California

Re: Suing a company that ran out of business

Yes a lawyer is recommended. 18 years experience. Call me directly at 16192223504.

Re: Suing a company that ran out of business

If you are wanting to sue for an amount due that is larger than $7500, the current maximum in small claims, then you will want to get professional help in collecting via 1) a debt collector , or 2) an attorney. Debt collectors often charge 40-50% of the debt due as their fee. Attorneys would probably negotiate for something less. It depends. The company to sue, or the individuals to sue depends on what type of entity your defendant is, and whether they have registered with the county and state authorities.

Feel free to call if you wish to discuss further.

Re: Suing a company that ran out of business

If the company is a corporation or limited liability company and you do not have a personal guaranty, and the company is truly out of business, your options are quite limited, as a judgment against defunct entity is worth about as much as the paper on which the judgment is printed.

If you have a personal guaranty for the debt, then you sue the individual(s) behind the guaranty.

Without a personal guaranty, if there are sufficient facts, you may be able to prove what is called alter ego liability. But we would need to review the relevant documents to make that type of determination. Alter ego liability is difficult to prove.

If you need assistance, please call or email. We are collection litigators with extensive experience obtaining and enforcing judgments.

***No Legal Services or Attorney Client Relationship - Although this email may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should not and are not authorized to rely on this email as a source of legal advice. Until a formal Retainer Agreement is executed, any communication between you and The Guerrini Law Firm cannot create any attorney-client relationship between you and The Guerrini Law Firm.***

Re: Suing a company that ran out of business

It's reasonably clear from your question that the debtor is a corporation.

Corporations do not cease to exist merely because they close their office, factory or store and cease doing business. The secretary of State's web site at www.ss.ca.gov has a business inquiry capability that allows you to determine whether the corporation is active, suspended, dissolved or merged. It will also give the name and address of the corporation's registered agent for service of process.

While it is generally true that the shareholders, directors and officers of a corporation are not liable for the debts of the corporation unless they have given a personal guarantee, there are at least two exceptions, any of which might fit in this case.

The first is the alter ego theory, also known as 'piercing the corporate veil.' This works when the owner(s) of the corporation have disregarded the separateness of the corporation to the extent that recognizing the corporation as having separate assets, accounts and affairs in court would be highly unjust. Usually, this comes abount when owners commingle assets, don't keep separate books, fail to elect and use bylaws and boards of directors, and so forth, either singly or in some combination of factors showing disregard for the corporate entity.

The other common situation is when a corporation makes distributions of money or assets to insiders (owners, directors, or officers) without first taking care of the corporation's creditors. If such distributions, which are often illegal per se, by the way, leave the corporation unable to pay its bills as they come due, the persons who authorized or benefitted from the distributions may be liable to the unpaid creditors under a fiduciary duty theory. It is also sometimes said that such distributions are a fraud on the creditors. This theory is much more likely to be upheld when the corporation has closed its business and thus has little or no prospect of generating other revenues to pay the affected creditor(s).

Going out of business is, however, not the same as ceasing to exist. An attorney would sue both the corporation and the resonsible individuals, asserting appropriate legal theories against each.

I would not say such a suit is beyond the capability of all non-lawyer business people, but there is a fair amount of conceptual knowledge needed to write an effective complaint and then prosecute it to settlement or judgment.

Re: Suing a company that ran out of business

Yes, you can sue a corporation (or other entity) that is "out of business." It may be difficult to collect any money, however, if the company legitimately has no money. Do you have any facts indicating that the corporation was just a "sham" and that the true owner was the president? If so, you can sue him too. This is a probably too complicated of a lawsuit to handle yourself -- you'll probably be better off hiring a lawyer. If you're interested in discussing this further, feel free to contact me.