Am I legally at risk with a business that I bought and failed ifI now form an LLC?
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Am I legally at risk with a business that I bought and failed ifI now form an LLC?
In 08/10 I signed an agreement to purchase a periodical for $20,000 and pay $1,000. The periodical was unsuccessful and drove me into a hole of an additional $10,000. I never registered the business in my county and ran it as a sole proprietorship. I was never able to make a payment to the previous owners. I immediately changed the name of the periodical entirely and never used it again. As the company was not profitable I was forced to close. The owners are threatening to sue. If I form an LLC now, can they still sue me personally?
Asked on April 19, 2011 under Business Law, North Carolina
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
This is a case of "closing the barn door after the horse has fled." You can be sued personally for anything you did, and any liability you incurred, while it was a sole proprietorship. Forming an LLC now can offer you protection from future liability, so it would be helpful for any business you run in the future; however, it does not help you retroactively or retrospectively. So if you incurred personal liability in the past, such as for any money did you not pay the former owner or other debts you did not honor, you can be sued personally on those regardless of any business entities you now own or form. You can't bring previous acts under a new LLC's protection.
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