Surviving Liability of Dissolved LLCs: Part 2

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In Washington, where an LLC is administratively dissolved by the Secretary of State, the LLC is provided with a period of two years in which it may apply to be reinstated. RCW 25.15.290. If no application for reinstatement is filed within those two years, the Secretary of State “shall” cancel the certificate of formation. Id. Once the certificate of formation is cancelled, an LLC is no longer a separate legal entity. RCW 25.15.070. Thus, according to the recent Division I decisions, an LLC does not have standing to bring claims after it has been cancelled, two years after dissolution. Nevertheless, it can be sued for up to three years after dissolution under RCW 25.15.303.

This was the problem for the developers in the Chadwick Farms and Maplecourt Seattle cases. In each of those cases, the LLC was administratively dissolved for failure to pay fees and file an annual report. During the two-year period for reinstatement, the HOA brought claims against the LLCs for construction defects. The developers attempted to bring third-party claims against contractors and subcontractors, but those claims were barred because the LLCs failed to apply for reinstatement within two years of dissolution, and the certificates of formation had been cancelled. Thus, the court reasoned, the LLCs did not have standing to bring third-party claims. However, the HOA’s claims against the LLC could continue because they were brought within the three-year period under RCW 25.15.303.

Thus, the LLC statute may leave an LLC exposed to claims for a period of one year where it cannot pass those claims through to contractors, because the statute provides a two-year cancellation period and a three-year suit limitations period. LLCs may be able to protect themselves where the LLC is dissolved by its members. This is the subject of the third (next) installment of this article.


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