Can a business sue a former president of a defunct SCorp in Texas?

Asked over 2 years ago - 76180

My husband got a phone call on his personal cell from a police officer in another city today. He was calling on behalf of a customer who bought advertising for a local sports event in their city. The customer wants a refund. Our corporation is still open in name only, we went out of business before the event. I feel bad but dont personally have the $650 to pay them. We lost most of our assets when we moved out of our office. We still have a truck that's paid off and one computer. What rights does this customer have?

Attorney answers (2)

  1. Brian Edward Walters

    Contributor Level 4

    4

    Lawyers agree

    Answered . In Texas, there is a fundamental assumption that the owners of a limited liability entity such as a corporation or an LLC are not personally liable for the debts and obligations of the business entity itself. There are certain exceptions to this rule which can lead to personal liability for the owners, but typically those involve some degree of fraud. The Texas legislature in 2011 amended the Business Organizations Code to apply the same personal liability test (called veil-piercing) to both LLCs and Corporations. I bring this up because, based on your question, it is not entirely clear which one your husband operates. "S-Corp" is a classification for federal income taxation of the business entity and does not affect the personal liability of the owners.

    To address the issue you raise more specifically, a "defunct" corporation or LLC can still be sued. In fact, they can be sued for a certain period of time even after they are formally terminated. Thus, if a party has a claim against the entity, he or she will be able to file a lawsuit to pursue that claim. As stated above, though, the individual owners of that Corporation or LLC should not be personally responsible for the business's obligations absent some degree of fraud. If the lawsuit is successful, the plaintiff can attempt to enforce its judgment against business assets. However, the rewards for suing a defunct corporation/LLC, particularly for such a low amount of money, are few.

    If you are interested in addressing issues like these, I recommend that you consult with a business transactional attorney in conjunction with shutting down your business. While sites like AVVO are a great resource, they are certainly not a substitute for legal advice, which can only be delivered based on your specific circumstances by your attorney.

    Best of luck!

    The content provided in this post is for informational purposes only and shall not be construed as legal advice.... more
  2. Lior Y Leser

    Contributor Level 9

    Answered . The quick answer is NO. An owner, officer and employee of an LLC or Corp (both c-corp and s-corp) are not liable for the debts and obligations of the entity absent fraud or commingling of funds. While the claimant can sue the company, the chance of that happening is small given the amount at question.

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