How Far Can a Business Go Under Before It's Gone Under?

March 2, 2020 8:10 AM

Legally speaking, in the USA, is there a point that marks an official "ending date" when an LLC business officially goes out of business? (I'm not talking about liquidation or bankruptcy). Specific situation inside.

I want a full refund for the $2000 I've prepaid* to a local company (an LLC) for work on my house without being subject to their broken-contract fees (several hundred dollars). None of the contracted work has yet begun (which is actually why I want a refund—it's been three months beyond when they said they "should" be able to get to us, and we're tired of waiting, asking, etc.).

Here's the wrinkle: recently I've seen that they've vacated their brick-and-mortar store, and friends of ours who know the owner say he's gone under. I suppose it's possible he's switched to being a home-based business, but the process of his going under would definitely explain why the work hasn't been started.

If they've truly gone under, I want to argue that this de facto means they've broken their contract with me, and are therefore not entitled to charge me for breaking the contract myself. What I'm afraid they'll do is claim that while they are *still* not able to get to our work, they're technically still in business, just as a home-based LLC (that is somehow currently not taking on any work).

My question is, assuming they don't file for liquidation or bankruptcy, is there a point in time the law recognizes as the "end date" of an LLC? Something I can find and point to in our next conversation as the reason giving me a full refund is their best option before I consider small claims?

If not, is there something I can do to make my best case for a full refund in small claims court?

*The company, which had good referrals from people we trust, offered a standard discount for prepaid work, which people we knew took advantage of in the past without a problem.

posted by Rykey to Law & Government (7 answers total)

You can make any claim you want but vacating premises without officially announcing a move is a very strong indicator that they have run out of money. Your claim can be successful and you still don’t get paid if there is nothing to pay you with. And the point of an LLC is that the owners’ personal funds are protected. So if they are actually offering you a refund I‘d take the money.
posted by koahiatamadl at 8:18 AM on March 2, 2020 [5 favorites]

You can search for info on LLCs and other corporations on your state's Secretary of State website. This is the one for Indiana, if you are still there. It will show as "dissolved" once it is inactive, which happens for various reasons. Once you are in the search results click on the "Business ID" and then the "Filing History" to look at the documents associated with the business. That might have some info for you.

But like koahiatamadl says it sounds like they are out of money.
posted by apricot at 8:49 AM on March 2, 2020

I have an LLC that has been in business since around 1998 or so. I file my documents regularly, but I have done no business in the LLC for a decade. In the LLC documents, there is an end date which is coming up, but I can just amend the LLC and extend the end date.

Let's assume the worst. They are out of money. They have no incentive to close the LLC. Not until they are forced to. If they stay "open", maybe a new customer will come by and make a large deposit that jumpstarts the business. I think I would make many efforts to reach the business over the next week. If I could not reach someone, I would contact the Attorney General's office. I would also sue them for your money back in small claims court. This will force the issue.

If they are bankrupt, legally or practically, getting your money back is going to be a problem.
posted by AugustWest at 9:20 AM on March 2, 2020

There's a possibility they have gone under and you are not getting back any of your money. Therefore I would be inclined not to waste any more time, forget arguing about the termination penalty and just immediately file to get as much money back as you can before it is all gone.

You can deduct any losses as bad debt on your tax return using Form 8949. First you must make an effort to collect the bad debt and then show that the debt cannot be collected. The loss becomes a capital loss which you can deduct the same as if you had a loss trading a stock or mutual fund. If you have no capital gains to offset the capital loss, you can deduct up to $3000 from your regular income.
posted by JackFlash at 9:40 AM on March 2, 2020

Response by poster: Thanks all. We've pretty much realized that our chances are not good here, and just wanted to check with the hive to make sure we didn't miss anything. Any additional comments or ideas are welcome.
posted by Rykey at 9:51 AM on March 2, 2020

Not your lawyer, not legal advice. Maybe there are outlier states on this, but an LLC doesn't generally need to be actually transacting business, occupying an office, etc. to remain in existence in the eyes of your state's secretary of state's office (or whoever). Did you actually enter into a prepaid contract with no specifications as to when the work would be started or completed? Because the issue here is going to be breach of contract, and I know the contracting game is brutal, but surely your contract wasn't just "here let me give you this money in advance and you will do the work when you feel like it."
posted by praemunire at 10:08 AM on March 2, 2020 [1 favorite]

Response by poster: Good news: I sent the owner an email saying basically "It looks like you're going under and neither one of us wants to go to court, so pretty please, do the work I paid for." And what do you know, a worker showed up first thing this morning. Thanks for the advice, all!
posted by Rykey at 6:48 AM on March 4, 2020