Can a Closed LLC Be Sued in Minnesota?

What Does Closing a Minnesota LLC or Corporation Do to Lawsuits Against It?

Closing a Minnesota company does not remove it as a party a creditor can sue. A dissolved LLC “continues after dissolution only for the purpose of winding up,” and winding up includes the power to “prosecute and defend actions and proceedings, whether civil, criminal, or administrative” under Minn. Stat. § 322C.0702, subd. 1 and subdivision 2.

Stopping business does not by itself dissolve an LLC. Under Minn. Stat. § 322C.0701, subd. 1, “A limited liability company is dissolved, and its activities must be wound up,” when one of the listed events occurs, and the list includes an event the operating agreement names, the consent of all the members, and a court order. An LLC whose owners simply stopped working is still an LLC, with the “capacity to sue and be sued in its own name” under Minn. Stat. § 322C.0105, subd. 1, unless it never had a member.

Once dissolved, the LLC “shall discharge the company’s debts, obligations, or other liabilities, settle and close the company’s activities, and marshal and distribute the assets of the company” under § 322C.0702, subd. 2. A dissolved corporation keeps a way to defend, too. Under Minn. Stat. § 302A.783, “After a corporation has been dissolved, any of its former officers, directors, or shareholders may assert or defend, in the name of the corporation, any claim by or against the corporation.” In district court, that defense still has to come through a licensed attorney: in Nicollet Restoration, Inc. v. Turnham, 486 N.W.2d 753 (Minn. 1992), the Minnesota Supreme Court wrote that “a corporation must be represented by a licensed attorney when appearing in district court.”

If the lawsuit was already pending when the owners decided to close, my page on dissolving a company while a lawsuit is already pending covers the steps that apply before dissolution.

How Does an Administrative Termination or Dissolution Change a Lawsuit?

A Minnesota corporation the Secretary of State dissolved for failing to file its annual registration could still be sued under a 1994 Court of Appeals decision. An LLC that lapsed for failing to file its annual renewal can undo the lapse retroactively. Under Minn. Stat. § 322C.0705, “A domestic limited liability company that has not filed a renewal pursuant to this section is administratively terminated.” Filing a renewal later “returns the limited liability company to active status as of the date of the administrative termination” under Minn. Stat. § 322C.0706, and it “validates contracts or other acts within the authority of the articles, and the limited liability company is liable for those contracts or acts.” Section 322C.0705 states the termination and the Secretary of State’s certificate and contains no bar on claims against the company.

For a corporation, Minn. Stat. § 302A.821, subd. 4 provides: “A corporation dissolved in this manner is not entitled to the benefits of section 302A.781.” Minn. Stat. § 302A.781 is the provision that limits late claims after a formal dissolution, so a corporation that simply lapsed gives up those limits.

In Lyman Lumber Co. v. Favorite Construction Co., 524 N.W.2d 484 (Minn. App. 1994), the Court of Appeals reversed a ruling that a corporation the Secretary of State had administratively dissolved could not be sued. The court read the Business Corporation Act to leave “such corporations indefinitely open to suit by a creditor,” and it added that the chance of reinstatement “further supports a conclusion that the corporation has not completely ceased to exist and is still subject to suit.” That decision applied the 1992 version of the corporate statute. The current service statute, Minn. Stat. § 5.25, subd. 5, now provides: “If a business entity has been involuntarily dissolved or its authority to transact business in this state has been revoked, service must be made according to subdivision 3 or 4.” Subdivision 3 is service through the Secretary of State.

When Does a Dissolution Notice Cut Off a Claim Against an LLC?

Under Minnesota’s LLC Act, a claim against a dissolved LLC “is barred” when the LLC gave a notice the statute describes and the claimant missed the window that notice started. Under Minn. Stat. § 322C.0703, subd. 2, a notice to a known claimant must “(1) specify the information required to be included in a claim; (2) provide a mailing address to which the claim is to be sent; (3) state the deadline for receipt of the claim, which may not be less than 120 days after the date the notice is received by the claimant; and (4) state that the claim will be barred if not received by the deadline.” Under subdivision 3, a claim is barred only “if the requirements of subdivision 2 are met” and “the claim is not received by the specified deadline,” or if the requirements are met, the LLC rejects the claim, and “the company causes the claimant to receive a notice in a record stating that the claim is rejected and will be barred unless the claimant commences an action against the company to enforce the claim within 90 days after the claimant receives the notice,” and the claimant does not sue. Check the current text of § 322C.0703 before relying on these periods.

The written-notice bar has a limit. Under subdivision 4, “This section does not apply to a claim based on an event occurring after the effective date of dissolution or a liability that on that date is contingent.”

A dissolved LLC may also publish notice in a newspaper. Under Minn. Stat. § 322C.0704, subd. 3, “If a dissolved limited liability company publishes a notice according to subdivision 2, unless the claimant commences an action to enforce the claim against the company within five years after the publication date of the notice, the claim of each of the following claimants is barred.” The list covers claimants who received no written notice, claimants whose claims were “timely sent to the company but not acted on,” and claims that were contingent at dissolution or arose afterward. Check the current text of § 322C.0704 before relying on that period.

Apart from any dissolution notice, the claim’s ordinary limitations period also applies, for an LLC or a corporation. For a contract claim, Minn. Stat. § 541.05, subd. 1 provides: “Except where the Uniform Commercial Code otherwise prescribes, the following actions shall be commenced within six years: (1) upon a contract or other obligation, express or implied, as to which no other limitation is expressly prescribed.” Under Minn. Stat. § 541.01, actions “can only be commenced within the periods prescribed in this chapter, after the cause of action accrues, except where a different limitation is prescribed by the Uniform Commercial Code or, in special cases, by other statute.” Check the current text of §§ 541.01 and 541.05 before relying on that period.

When your LLC is sued, I suggest finding any notice the LLC sent or published when it closed, because a claim that notice cut off is a defense the company can raise in its answer. For an owner who has not finished closing, my guide on how to dissolve an LLC in Minnesota explains the notice steps.

When Does a Dissolution Notice Cut Off a Claim Against a Corporation?

A claim against a dissolving Minnesota corporation can be barred on one of two schedules, depending on whether the corporation gave notice to creditors. Each bar is subject to § 302A.781, which, among other limits, provides in subdivision 4 that statutory home warranties “are not affected by the dissolution under this chapter of a vendor or home improvement contractor” and in subdivision 5 that “all other statutory and common law rights of persons who may bring claims of injury to a person, including death, are not affected by dissolution under this chapter.” A corporation that gives notice under Minn. Stat. § 302A.727, subd. 2 sets a claim date “which shall be the later of 90 days after published notice or, with respect to a particular known creditor or claimant, 90 days after the date on which written notice was given to that creditor or claimant.” Under subdivision 3, a creditor given notice “who fails to file a claim according to the procedures set forth by the corporation on or before the date set forth in the notice is barred from suing on that claim or otherwise realizing upon or enforcing it, except as provided in section 302A.781.” Under subdivision 3, paragraph (a), the corporation “has 30 days from the receipt of each claim filed according to the procedures set forth by the corporation on or before the date set forth in the notice to accept or reject the claim by giving written notice to the person submitting it; a claim not expressly rejected in this manner is deemed accepted.” A creditor whose claim the corporation rejects “has 60 days from the date of rejection, 180 days from the date the corporation filed with the secretary of state the notice of intent to dissolve, or 90 days after the date on which notice was given to the creditor or claimant, whichever is longer, to pursue any other remedies with respect to the claim.” Check the current text of § 302A.727 before relying on these periods.

A corporation that gives no notice follows Minn. Stat. § 302A.7291, subd. 3. Under both of its paragraphs, a person who does not file a claim or pursue a remedy in a legal, administrative, or arbitration proceeding “within two years after the date of filing the notice of intent to dissolve is barred from suing on that claim or otherwise realizing upon or enforcing it.” Paragraph (b), which applies when the corporation had not paid or provided for all known creditors, adds an exception for section 302A.781. Check the current text of § 302A.7291 before relying on that period.

Section 302A.781 reopens some barred claims and preserves others. Under § 302A.781, subd. 2, “At any time within one year after articles of dissolution have been filed with the secretary of state pursuant to section 302A.727 or 302A.7291, subdivision 1, clause (2), or a decree of dissolution has been entered, a creditor or claimant who shows good cause for not having previously filed the claim may apply to a court in this state to allow a claim,” either against the corporation’s undistributed assets or, if those fall short, against shareholders. Check the current text of § 302A.781 before relying on that period. Subdivisions 4 and 5 are the home-warranty and injury-claim protections quoted at the start of this section.

When Can the Owner Be Personally Liable for a Closed Company’s Debt?

An owner is not liable for a closed company’s debt just because they owned or managed it. Under Minn. Stat. § 322C.0304, subd. 1, an LLC’s debts “do not become the debts, obligations, or other liabilities of a member, manager, or governor solely by reason of the member acting as a member, manager acting as a manager, or governor acting as a governor.” For corporations, the Minnesota Supreme Court wrote in Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509 (Minn. 1979): “Doing business in a corporate form in order to limit individual liability is not wrong; it is, in fact, one purpose for incorporating.”

The exposure comes from specific routes, including these:

1. Assets you received after dissolution. For an LLC, Minn. Stat. § 322C.0704, subd. 4 lets a creditor whose claim is not barred enforce it against members who received company assets after dissolution. The statute reaches a member “to the extent of that person’s proportionate share of the claim or of the assets distributed to the member or transferee after dissolution, whichever is less, but a person’s total liability for all claims under this clause does not exceed the total amount of assets distributed to the person after dissolution.” For a corporation, a claim a court allows under § 302A.781, subd. 2 can reach a shareholder only “if the undistributed assets are not sufficient to satisfy the claim,” and the shareholder’s “liability shall be limited to a portion of the claim that is equal to the portion of the distributions to shareholders in liquidation or dissolution received by the shareholder, but in no event may a shareholder’s liability exceed the amount which that shareholder actually received in the dissolution.”
2. Distributions the company could not afford. Under Minn. Stat. § 322C.0406, subd. 3, “A person that receives a distribution knowing that the distribution to that person was made in violation of section 322C.0405 is personally liable to the limited liability company but only to the extent that the distribution received by the person exceeded the amount that could have been properly paid under section 322C.0405.” The owner who approved the distribution can be liable whether or not they received it: under subdivision 1, “Except as otherwise provided in subdivision 2, if a member of a member-managed limited liability company, manager of a manager-managed limited liability company, or governor of a board-managed limited liability company consents to a distribution made in violation of section 322C.0405 and in consenting to the distribution fails to comply with section 322C.0409, the member, manager, or governor is personally liable to the company for the amount of the distribution that exceeds the amount that could have been distributed without the violation of section 322C.0405.” Subdivision 5 provides: “An action under this section is barred if not commenced within two years after the distribution.” For a corporation, Minn. Stat. § 302A.557, subd. 1 makes a shareholder who receives an unlawful distribution liable “to the corporation, its receiver or other person winding up its affairs, or a director under section 302A.559, subdivision 2,” up to the excess. Under Minn. Stat. § 302A.559, subd. 1, “In addition to any other liabilities, a director who is present at a meeting and fails to vote against, or who consents in writing to, a distribution made in violation of section 302A.551, subdivision 1, paragraph (a), or 4, or a restriction contained in the articles or bylaws or an agreement, and who fails to comply with the standard of conduct provided in section 302A.251, is liable to the corporation, its receiver or any other person winding up its affairs,” but “only to the extent that the distribution exceeded the amount that properly could have been paid under section 302A.551.” Section 302A.557, subdivision 2, and section 302A.559, subdivision 4, each provide: “An action shall not be commenced under this section more than two years from the date of the distribution.” For a corporation that lapsed, § 302A.821, subd. 4 provides that shareholder liability “shall be determined and limited in accordance with section 302A.557, except that the shareholders shall have no liability to any director of the corporation under section 302A.559, subdivision 2.” These distribution statutes make the liability run to the company and the others quoted above. For an LLC’s distributions, a creditor of the company may also look to Minn. Stat. § 513.45, which provides: “A transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.” Minn. Stat. § 513.44 also reaches a creditor “whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred,” if the debtor made the transfer “with actual intent to hinder, delay, or defraud any creditor of the debtor” or “without receiving a reasonably equivalent value in exchange for the transfer or obligation” in either of two settings. In the first, the debtor “was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.” In the second, the debtor “intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.” For a corporation, Minn. Stat. § 302A.551, subd. 3, paragraph (d), provides that “the provisions of sections 513.41 to 513.51 do not apply to distributions made by a corporation governed by this chapter.” Check the current text of §§ 322C.0406, 302A.557, and 302A.559 before relying on these periods.
3. Winding-up debts left unpaid by a corporation. Under § 302A.781, subd. 3, “A person to whom this kind of debt, obligation, or liability is owed but not paid may pursue any remedy before the expiration of the applicable statute of limitations against the officers and directors of the corporation who are responsible for, but who fail to cause the corporation to pay or make provision for payment of the debts, obligations, and liabilities or against shareholders to the extent permitted under section 302A.559.” That subdivision covers contractual debts incurred in winding up and does not apply to dissolution under a court’s supervision or order.
4. Veil piercing. Under § 322C.0304, subd. 3, “the case law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies,” except for failures to observe internal formalities. Victoria Elevator lists factors including insufficient capitalization, siphoning of funds by the dominant shareholder, absence of corporate records, and “existence of corporation as merely facade for individual dealings.” Relying on a federal appeals decision, the court added: “Disregard of the corporate entity requires not only that a number of these factors be present, but also that there be an element of injustice or fundamental unfairness.” My page on how Minnesota’s veil-piercing test works walks through each factor.
5. A personal guarantee you signed. A guarantee is your own promise to the creditor, separate from the company’s, so its terms decide what happens when the company closes. My page on personal guarantees explains how they reach the owner.
6. A wrong you personally took part in as an officer. In DeRosa v. McKenzie, 936 N.W.2d 342 (Minn. 2019), a defamation case decided on a motion to dismiss, the Minnesota Supreme Court, quoting an earlier decision, wrote: “It is the universal rule that an officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor . . . .” The court added that “A corporate officer cannot be held personally liable for a company’s defamatory acts by virtue of job title alone.”

How Is a Closed Company Served, and When Is the Answer Due?

A closed Minnesota company can be served through its registered agent, an officer or manager, or the Secretary of State. Under Minn. Stat. § 5.25, subd. 1, service goes to the Secretary of State “if no agent, officer, manager, or general partner can be found at the address on file with the secretary of state.” Under subdivision 6, the Secretary of State “shall immediately cause a copy of a service of process to be forwarded by certified mail,” addressed “in care of the agent of the business entity, at its registered office in this state as it appears in the records of the secretary of state.” For a closed company, that registered office can be an address nobody checks anymore, so the papers can sit there unread.

The deadline depends on how service was made. Under Minn. R. Civ. P. 12.01, “Defendant shall serve an answer within 21 days after service of the summons upon that defendant unless the court directs otherwise pursuant to Rule 4.043.” Under § 5.25, subd. 7, “If a summons is to be served upon the secretary of state according to subdivision 3 or 4, the business entity so served has 30 days from the date of mailing by the secretary of state in which to answer the complaint.” Check the current text of Rule 12.01 and § 5.25 before relying on these periods.

My page on what to do when your business is served with a lawsuit covers checking service, counting the days, and notifying insurers.

Who Can Answer the Lawsuit for a Closed Company?

A licensed attorney must answer for the company in district court, even when the owner holds every share or membership interest. In Nicollet Restoration, Inc. v. Turnham, 486 N.W.2d 753 (Minn. 1992), the Minnesota Supreme Court wrote: “we reaffirm our conviction that a corporation must be represented by a licensed attorney when appearing in district court.” Quoting an earlier decision, the court explained that a person’s right to appear for himself “does not entitle him to appear for a corporation, even if he owns all its capital stock.”

The same rule applies to LLCs. In 301 Clifton Place L.L.C. v. 301 Clifton Place Condominium Ass’n, 783 N.W.2d 551 (Minn. App. 2010), a case involving Nevada LLCs in a Minnesota district court, the Court of Appeals wrote: “Respondent concedes that this rule extends beyond business corporations and applies to LLCs. We agree.”

The Minnesota Supreme Court addressed a filing a nonattorney signed for a corporation in Save Our Creeks v. City of Brooklyn Park, 699 N.W.2d 307 (Minn. 2005), a case that “concerns the legal validity of a complaint filed on behalf of a corporation but signed by a nonattorney.” For that plaintiff’s complaint, the court held that “a complaint signed and filed by a nonattorney on behalf of a corporate entity is not a legal nullity” and allowed a cure on conditions, but warned that “if a corporation knows or should know, that its action is improper, amendment will not be allowed.” My page on whether an LLC can represent itself in court covers the conciliation court exception and the other details.

What Happens to the Owner If the Company Lets a Default Enter?

If no one answers for the company, the plaintiff can obtain a default judgment against the company. That judgment reaches the owner only through a personal-liability route such as post-dissolution assets, an unlawful distribution, a guarantee, or veil piercing. Under Minn. R. Civ. P. 55.01, when a party “has failed to plead or otherwise defend within the time allowed therefor by these rules or by statute, and that fact is made to appear by affidavit, judgment by default shall be entered against that party.” When the claim is “upon a contract for the payment of money only,” the court administrator enters judgment on the plaintiff’s affidavit of the amount due.

A default leaves the amount uncontested, and that amount can follow the owner later. In Victoria Elevator, footnote 1 of the opinion states that the original action “was brought in 1974 by Victoria Elevator Co. against Meriden Grain Co., Inc. and Harold Schroeder,” and that the corporation “did not file an answer and a default judgment was entered against it.” The Minnesota Supreme Court later affirmed a judgment “finding defendant individually liable for a default judgment previously entered against Meriden Grain Co.” on veil-piercing grounds.

If a default has already entered, my page on how to ask a Minnesota court to vacate a judgment covers that motion.

How Should an Owner Weigh the Options When a Closed Company Is Sued?

An owner of a closed company can choose among four paths, and the right one depends on what the company still holds and which personal-liability routes reach the owner. Each path has a fit and a risk:

1. A direct conversation with the claimant. This fits when the company has little or nothing left and the claimant would rather stop spending on the case. Showing the claimant the company’s closing records may end the matter. Its risk is an informal understanding that nobody puts in writing while the lawsuit moves forward.
2. An answer filed through an attorney. This fits when a dissolution notice may bar the claim, the amount is disputed, or an owner received distributions or signed a guarantee. Its risk is the cost of defending a company that may have no assets to protect.
3. A negotiated payment from what the company still holds. This fits when assets remain. A winding-up LLC “must apply its assets to discharge its obligations to creditors, including members that are creditors” under Minn. Stat. § 322C.0707, subd. 1. Its risk is paying one creditor while others with equal claims go unpaid.
4. Letting the default enter. This fits when the company has no assets and no personal-liability route reaches an owner. Those routes include a distribution an owner received or approved, unpaid winding-up debts, a guarantee, veil piercing, or a wrong an officer personally took part in. Its risk is an uncontested judgment amount, which Victoria Elevator shows can later be pursued against an owner.

I suggest deciding promptly after service, because once a default judgment is entered, undoing it takes a motion under Minn. R. Civ. P. 60.02 or an independent action.

Your Closed Company and the Lawsuit

A closed Minnesota company can still be sued, and the lawsuit stays the company’s problem unless a personal-liability route makes it yours. Those routes include a dissolution distribution, an unlawful distribution you received or approved, unpaid winding-up debts, a personal guarantee, veil piercing, or a wrong you personally took part in as an officer. The dissolution notices the company did or did not give decide whether a dissolution statute bars the claim, and the claim’s ordinary limitations period still applies. For other business disputes, see my business litigation practice. If your closed company has been sued, email [email protected] with a brief description. I can start an intake and conflict check before you send any confidential documents.