Unless properly dissolved the business of a defunct business may stop, but the liability of the former owners may continue. Not to mention the tax filing requirements and in some cases the business privilege tax requirements remain in place and ongoing.

To further complicate matters, if any of the owners took a distribution, or transferred an asset, or took possession of property, or otherwise moved anything from the former business to their personal account or possession, in the face of any claims, known or unknown, those assets can be clawed back, and can even become the basis for an independent fraudulent transfer cause of action against the business owners in their personal capacities on top of the misappropriation.

Therefore, the main take away of this post is to remind business owners (or ex-business owners) that in Alabama, as a general rule, until a defunct business goes through a proper winding-up process and follows formal dissolution procedures the limitation of liability of the former owners, partners, shareholders or members remains intact.

Lastly, please be aware that walking away is not the proper procedure. Even if there is no money or assets left in the business, I tell clients to spend a few extra dollars to ensure the business is properly dissolved to avoid personally assuming liability in their individual capacity. Otherwise, it could be lights out for both the business and the former owners on a personal basis.

If you have any questions whatsoever about business formation, litigation, or dissolution, please give me a call.