Expert: Christine Janklow - 6/19/2008

Question
QUESTION: I am the sole member of an LLC.  If I close the business, and do not pay all of my bills, can I be sued personally for the debts?  I am aware that I am responsible for anything I signed with personal guarantee. Am I personally responsible for sales tax?(New York).  If I am sued I understand I must appear in court, but what debts may I be responsible for?

ANSWER: Theresa:
Thank you for your inquiry. Based on the information you have provided, it is difficult to say what you might be liable for upon dissolution of your business. I don't know who you owe money to or what the status of the debt may be. Generally, personal guarantees on debt, mean you won't just be able to "walk away" from the liability without incurring collections and possibly legal action against your personal assets. You can however, opt to engage any such debt in a commercial debt management program to reduce what you will repay and the chance of litigation due to non-payment. I do represent such a firm and would be pleased to evaluate your situation in more detail if you deem appropriate. As for the State Tax, I looked into this and here is what I found:
"New York Tax Law section 1133(a) imposes personal liability for unpaid sales and use taxes upon “persons required to collect tax.” In a corporate context, the persons required to collect and remit sales and use taxes include any employed officers, directors, or managers who are under a duty to act for the corporation [see section 1131(1)]." If you are still unsure I strongly recommend you speak with a lawyer or certified public accountant in your area to advise you on any potential exposure. If this reply was helpful, please take a moment to provide a positive rating so that others may benefit as well.

Respectfully,

Christine Janklow



---------- FOLLOW-UP ----------

QUESTION: If I am the sole member of an LLC and I close my business can I be personally liable for any unpaid debts for example to an attorney who did some work for the busines, or a plumber who did some work, or a linen company who delivered goods?

Answer
Theresa:
Thanks for your follow up. The attorney may have required you to sign a retainer agreement, that may indicate personal guarantee so that could be a problem. They are litigious by nature and unpaid bills are usually pursued. As for the vendors and suppliers, than it is likely they will attempt to collect on the business, and perhaps try to contact you for payment at which point you can explain that there are no further assets from the business to address it. You may attempt to pro-actively settle out the debt for less than the full balance to insure they won't collect in the future. If you can save up a % of money to offer up and negotiate your payoff then don't pay it until you get an agreement to settle in writing. Positioning yourself as someone who won't run from her liabilities will be to your advantage and foster good will that can to get it off their books rather than watch you and their money disappear.

Hope this was helpful.

C.Janklow