What Happens When a Company Dissolves?

Sometimes, the complexities of business entities (such as nonprofit or for-profit corporations) can create thorny legal problems when one of the entities dissolves.

In one recent unpublished opinion, Zacks v. Arden Drywall & Texture, Inc., No. 70322-6-1 (Division One, August 14, 2014), a general contractor built a single-family residence, which the Zackses purchased 4 years later. After construction defects were found, the Zackses sued, and the suit was dismissed as against Arden Drywall, one of the subcontractors on the job, on the basis that the suit was time barred under former RCW 25.15.303 (2006). Arden Drywall had been administratively dissolved by the Secretary of State on September 2, 2008. Former RCW 25.15.303 required that any lawsuit against a Limited Liability Corporation (LLC) be filed within three years of the effective date of the dissolution (so, by September of 2011 – the lawsuit was filed in 2012).

However, according to the Zacks, under the 2010 amendment of RCW 25.15.303, Arden Drywall had to file a “certificate of dissolution” to start the three-year statute of limitations, and that since Arden Drywall did not do that, the lawsuit was not time-barred. The trial court held that the 2006 version of RCW 25.15.303 applied, and dismissed the Zacks’ claims against Arden; the Zackses appealed.

The Court of Appeals reversed, agreeing with the Zackses that the lawsuit was not time-bared. The Court explained that LLCs may be administratively dissolved by the Secretary of State; however, this does not terminate the entire existence of the LLC. A dissolved LLC continues to exist for purposes of winding up its business, prosecuting and defending suits, disposing and conveying property, and distributing remaining assets.[1]

So some dissolved entities may still have legal obligations and exist, even though dissolved by the Secretary of State. As in all matters affecting community associations, it is important to seek advice from an attorney if questions arise concerning the legal status of various business entities.

[1] The current version of RCW 25.15.303 provides that unless the LLC has already disposed of all known claims against it pursuant to statutory requirements, the dissolution of a limited liability company does not take away any remedy available to or against that LLC for any right or claim existing, or any liability incurred, whether prior to or after dissolution, unless the limited liability company has filed a certificate of dissolution and an action or other proceeding is not commenced within three years after the filing of the certificate of dissolution.

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What Happens When a Company Dissolves?

Sometimes, the complexities of business entities (such as nonprofit or for-profit corporations) can create thorny legal problems when one of the entities dissolves.

In one recent unpublished opinion, Zacks v. Arden Drywall & Texture, Inc., No. 70322-6-1 (Division One, August 14, 2014), a general contractor built a single-family residence, which the Zackses purchased 4 years later. After construction defects were found, the Zackses sued, and the suit was dismissed as against Arden Drywall, one of the subcontractors on the job, on the basis that the suit was time barred under former RCW 25.15.303 (2006). Arden Drywall had been administratively dissolved by the Secretary of State on September 2, 2008. Former RCW 25.15.303 required that any lawsuit against a Limited Liability Corporation (LLC) be filed within three years of the effective date of the dissolution (so, by September of 2011 – the lawsuit was filed in 2012).

However, according to the Zacks, under the 2010 amendment of RCW 25.15.303, Arden Drywall had to file a “certificate of dissolution” to start the three-year statute of limitations, and that since Arden Drywall did not do that, the lawsuit was not time-barred. The trial court held that the 2006 version of RCW 25.15.303 applied, and dismissed the Zacks’ claims against Arden; the Zackses appealed.

The Court of Appeals reversed, agreeing with the Zackses that the lawsuit was not time-bared. The Court explained that LLCs may be administratively dissolved by the Secretary of State; however, this does not terminate the entire existence of the LLC. A dissolved LLC continues to exist for purposes of winding up its business, prosecuting and defending suits, disposing and conveying property, and distributing remaining assets.[1]

So some dissolved entities may still have legal obligations and exist, even though dissolved by the Secretary of State. As in all matters affecting community associations, it is important to seek advice from an attorney if questions arise concerning the legal status of various business entities.

[1] The current version of RCW 25.15.303 provides that unless the LLC has already disposed of all known claims against it pursuant to statutory requirements, the dissolution of a limited liability company does not take away any remedy available to or against that LLC for any right or claim existing, or any liability incurred, whether prior to or after dissolution, unless the limited liability company has filed a certificate of dissolution and an action or other proceeding is not commenced within three years after the filing of the certificate of dissolution.

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