Legal Question in Business Law in Washington

Is it better to dissolve or file a banktrupcy? My husband and I have a home based limited liability company in the state of Washington. For the past year business has been non-existent and there are no company assets, but some bills are due to the credit cards, vendor, consultant, utilities. They were all in the business name. We have been in the business since the end of the year 2003 and the state filing fee was already due but if we don't pay it by the end of February (very soon)., the business will be automatically dissolved due to the non-payment of required state LLC fees. We are tired of investing our own personal funds into the business, but afraid that if we dissolve that the business vendors and creditors will come after our personal assets (although they are quite non-existent too). What is the best course of action under our desperate circumstances? Also, is it possible to start a new business in the future without having the burden of bad credit and / or banktrupcy from the old business? Is there a time limit when you can start a new LLC? What is the best course of action for that?


Asked on 2/12/11, 6:34 am

1 Answer from Attorneys

Susan Beecher Susan L. Beecher, Atty at Law

Whether you can either dissolve the business or declare bankruptcy for it and still protect your personal assets depends on many things. Most important, have you been observing "corporate formalities". I know you have an LLC, not a corporation, but that refers to the general practice of keeping company business and personal business separate, and conducting the company as a company. For example, have you refrained from paying your personal bills with company funds? Have you refrained from paying yourselves distributions when the company did not have enough money to meet expenses? Do you have an operating agreement and have you been following its provisions? Another important question is whether you have personally guaranteed any of the debts that are in the company name.

As to whether you can or should start a new company, there is no rule that says that if your entity (LLC, corporation or whatever) is bankrupt or dissolved that you can't start another one. The tricky question is whether the new company is really a successor to the old one. If, for example, your current business is pet grooming, and you decide to shut the business and open a new one as a party planner, you should have no problem. However, if you shut the pet grooming business and two weeks later open a new pet grooming business, having purchased your equipment from the old business for $10, and having contacted all your regular customers and told them "we've changed our name", you will definitely have a problem.

All the above is to explain why my real advice is, you have a lot of "if...then..." parts to your situation. You should probably spend a little time with an attorney, discuss all the details, and get advice that is focused on your situation.

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Answered on 2/12/11, 10:31 am


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