Home / Business of Law / What are the Effects of Dissolution on a Company’s Contracts?

What are the Effects of Dissolution on a Company’s Contracts?

Nov 30, 2022 | Business of Law

Upon making the decision to dissolve a company, the company and the management of the company must follow wind-up procedures. Whether your company is structured as an LLC or a corporation, our New York business law attorneys will help you understand the dissolution process — it is often long and complex. As the company is liquidated, new business cannot be conducted and old business must be wrapped up, including those involving contractual obligations.   

What is Dissolution?

“Dissolution” refers to closing a business or corporate entity. When Articles of Dissolution are filed, the company’s legal existence ends. This document is effectively the opposite of the “Articles of Incorporation” filed at the beginning of the company’s existence. Failure to file this document when you close a company will result in the state assuming you are still conducting business. You would still be expected to file reports as necessary and pay taxes.   

Several steps must be taken in order to formally close a company. While ceasing the business’s operations is just one part of the dissolution process, all debts, liabilities, and affairs must be settled. The terms of existing contracts must be carried out and completed — agreements cannot be renewed.  

Settling a Company’s Outstanding Liabilities During the Dissolution Process

Before a company can be dissolved, all outstanding contracts must be performed. Even though owners may have closed the company, they might still have responsibilities regarding existing agreements. It’s crucial to look at the terms of the contract to determine what happens to the agreement if the business closes or there is a change in ownership. 

If you’re a business seeking to enforce the contract with a dissolving company, it’s important to determine whether it is worth the time, effort, and expense to take legal action. For example, a closing business might not have the assets to make payment on the contract. Even if the company still has assets remaining, it may be subject to claims made by other creditors. It’s vital to consider whether it would be financially beneficial to your company to enforce an existing contract with a dissolving business.     

Can You Sue a Dissolved Business for Breach of Contract?

If an LLC or corporation has begun wind-up procedures but has not yet formally dissolved, it can still sue or be sued for breach of contract. While a dissolved corporation can be sued in New York for breach of contract claims that arose before dissolution, a dissolved corporation cannot sue after filing the Articles of Dissolution.   

Entering into a new contract during the dissolution process could result in shareholders and members being held personally liable. Although corporations and LLCs are separate legal entities from the owners and shareholders, the “corporate veil” can be pierced in certain situations — and officers, directors, and shareholders can be held personally liable for a company’s debts. Specifically, the corporate veil may be pierced where a company violated the proper dissolution and windup procedures.

Company Dissolution Service

Closing a business can be complicated — if you fail to satisfy your contractual obligations and liabilities during the dissolution process, you could face significant financial and legal ramifications. A skilled business law attorney can help guide you through the procedures associated with winding up a company. Brinen & Associates is committed to providing reliable representation to entrepreneurs and corporate owners for various business matters. Call (212) 330-8151 or send us a message to learn how our New York Business Law attorneys can help.


Forming Your Company

Financing Your Company

Operating Your Company

Growing Your Company

Defending Your Company


Transactional and Corporate Law

Mergers and Acquisitions


I formerly worked as a satellite employee from my home state of New Jersey. I ended my employment with my former employer in 2016. In 2018, I was sued by my former employer for $1.1 million in Illinois State Court. I was referred to Brinen & Associates, LLC by a friend who is a client of the firm. Brinen & Associates, LLC came highly recommended. I contacted Joshua Brinen and then had a consultation at his office with his colleague Mark White. Together, Messrs. Brinen and White explained my options...

Read More