A Civil Litigator Focused On Efficient And Cost-Effective Solutions

What happens to the liabilities of a dissolved company?

On Behalf of | Jun 26, 2023 | Business & Commercial Litigation |

When a company reaches the end of its life cycle, it goes through the dissolution process. But what about its debts and obligations? Do they vanish into thin air?

Clearing the slate

First, dissolution doesn’t mean a free pass for a company’s liabilities. When a company dissolves, it must settle all its outstanding debts, claims and obligations. The company must ensure that every creditor, supplier and lender is duly paid off. It is all about tying up those loose ends and providing a fair resolution to those they owe money.

Distribution of assets

Now, what about the company’s assets? After settling the debts, they may distribute the remaining assets among the shareholders or members, depending on the entity type. But there is a catch. Georgia law states that the company must first use any remaining funds or assets to satisfy the outstanding liabilities. Think of it as a debt payback priority system. The shareholders or members only get their share of the pie after fulfilling all obligations. It is a fair way to ensure that the company’s debts precede personal gains.

Personal liability

Dissolution does not grant the company owners, directors or officers a get-out-of-jail-free card. If any fraudulent or unlawful conduct led to the company’s dissolution, these individuals may find themselves personally liable for certain obligations. Simply put, they can’t just walk away if they have done wrong. However, without such conduct, the law cannot enforce the company’s debts against the individual shareholders, directors or officers.

Remember, when it comes to the dissolution of a company, there is no magic disappearing act for its liabilities. It is all about taking responsibility and tying up loose ends before closing the company.