“Ask CashFlo” is a credit and collections advice column for small businesses. Questions may be submitted via email to flo@askcashflo.com. Follow CashFlo on Twitter @AskCashFlo. CashFlo reminds readers that she is not an attorney and nothing in this column should be construed as legal advice. As CashFlo always says, “When in doubt, consult your attorney”.
Dear CashFlo,
I run a commercial real estate company based in Connecticut. We pride ourselves on providing quality space for small businesses at affordable prices. We especially like to lease space to start up companies and watch them grow. Lately, one of our tenants, who was three months behind on rent left in the middle of the night, and left owing us a good deal of money. Their business phone is disconnected, and their website is not working anymore. When we contacted one of the owners he told me that he dissolved his corporation. He said that the corporation has no assets, a good deal of debt, and that there is no way to pay me. I know that the owners have a nice home and money in the bank. Isn’t there something we can do? Should I sue them in Small Claims Court?
Wondering in Westport
Dear Wondering,
Limited Liability Companies (LLC’s) go out of business every day. As their name implies, they are set up to limit the liability of a company and their principals If an LLC. If they dissolve correctly and according to statute and truly have no assets, then you are likely out of luck. It is tough enough to recover had debt.
A small claims action would be a mistake and would result in a judgment that you cannot collect since there is nothing to get. In the future, including a personal guarantee, which makes the principals personally liable for the business debts, in your lease agreement. Your attorney can draft one for you.
In this case the personal assets of the owners are meaningless, and cannot be attached. If you have the owners’ personal guarantee, then the assets could be attached.
So, dear Wondering, learn from your mistakes and get personal!
Yours truly,
CashFlo
PS. Here are some great tips to reduce bad debt in your business.
