Business Startup

Personal Liability for corporate transactions after dissolution

In a recent Court of Appeals decision*, the honorable judge Laurel Siddoway reiterated the Supreme Court’s stance on applying the theory of promoter liability to post-dissolution corporate acts. This means, for purposes of individual liability, any acts occurring on behalf of the corporation after dissolution, whether voluntary or involuntary, must be made solely for the purposes of winding up the corporate affairs and business. A corporation’s key personnel may be held personally liable if they carry on any business that is not necessary to wind up and liquidate its business.

In Equipto Division Aurora Equipment Co. v. Yarmouth, the Supreme Court determined that RCW 23B.02.040 of the Washington Business Corporation Act applies to both prior corporation acts and post-dissolution transactions that “violate the statutory restriction of winding up the corporate business.”

For a post-dissolution transaction to violate the statute the defendant must act as or on behalf of a corporation. This element is clear and relatively easy to prove with evidentiary support. The dilemma, however, lies in the second element- the defendant must have actual knowledge that the corporation was dissolved when the acts occurred. RCW 23B.14.210(b) states “once dissolved, the corporation continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs…” Thus, a corporation continues to exist during the time it is winding up its affairs. This creates difficulty when a defendant has acted on behalf of the corporation during the period of time it is winding up its affairs, and still “continues to exist.” Despite this dilemma, the Supreme Court has found that both case law and legislative history support using dissolution as the time when the risk of personal liability begins.

 

*Plese-Graham, LLC, et al v. Robert Loshbaugh, et al

          


Gavin Johnson

Gavin enjoys craft beer and is learning the art of brewing.


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