Suing a limited liability company (LLC) in Texas can be complex, especially if the business has little to no assets. LLCs are designed to protect their owners’ personal assets, making it difficult for creditors or plaintiffs to recover monies owed if the company lacks sufficient resources.
While it is possible to sue an LLC with no assets, a successful lawsuit doesn’t always mean you’ll be able to collect a judgment, particularly if the LLC is essentially “judgment-proof” due to its financial situation.
Understanding Texas law is critical when considering legal action against an LLC. The legal protections offered to LLC owners, the limits of a company’s liability, and the potential challenges of enforcing a court judgment all play a significant role in determining whether a lawsuit is the right course of action.
At Massingill, our experienced Texas business litigation lawyer can help you navigate these complexities and determine the best approach to your case.
Understanding LLCs in Texas
In Texas, LLCs offer owners, called members, protection from personal liability. If the business faces legal action, the member’s personal assets, such as homes or savings, are generally not at risk. Texas treats an LLC as a separate legal entity with its own assets and liabilities.
When you sue an LLC with no money, you’re targeting the company itself, not its members. This separation between the business and personal assets is one of the key reasons entrepreneurs choose the LLC structure. However, recovering a judgment can be difficult if the LLC lacks assets.
Texas law provides strict protections for LLC owners, but there are exceptions. In cases of fraud or misconduct, courts may “pierce the corporate veil,” holding members personally liable for business debts. However, this is rare and requires substantial proof.
Common Reasons for Suing an LLC
Several common reasons exist for suing an LLC in Texas, even when the company has no assets. These types of disputes often arise in business and employment relationships, and legal action may be necessary to resolve them. Common reasons include:
- Breach of contract, such as failing to provide goods or services as agreed;
- Unpaid debts or loans where the LLC fails to repay money owed to creditors; and
- Employment disputes, including unpaid wages, wrongful termination, or other violations of employee rights.
Even though a lawsuit may be appropriate in your situation, suing an LLC with no money presents challenges when collecting damages.
Piercing the Corporate Veil in Texas and Legal Recourse
Suing an LLC with no assets can be frustrating, but there are legal avenues to consider. In Texas, if an LLC lacks sufficient assets to pay a judgment, the ability to collect can be extremely limited. However, there are ways to hold LLC owners personally liable through a legal process known as piercing the corporate veil.
Piercing the corporate veil allows a plaintiff to go beyond the LLC’s limited liability protections in specific circumstances. Under certain conditions, Texas courts may permit this process when the member used the corporation to:
- Perpetrate fraud,
- Serve as a mere tool or business conduit of another corporation,
- Evade an existing legal obligation,
- Achieve or perpetuate a monopoly,
- Circumvent a statute, and
- Being relied upon as a protection of crime or justify a wrong.
Texas law may allow the court to hold LLC members personally responsible for the company’s debts if a plaintiff can prove these conditions. However, it’s important to understand that piercing the corporate veil is not easy—it requires strong evidence. It is only applied in exceptional cases, as the standard remedy in Texas is not to pierce.
Other Options
Beyond attempting to pierce the veil, there are other post-judgment collection options in Texas, including:
- Placing liens on any future LLC assets,
- Garnishing wages or business income if applicable, and
- Conducting asset searches to uncover hidden resources.
These legal avenues provide some recourse for plaintiffs, but they also depend on the LLC’s financial state and the actions of its members. Consulting with a Texas business litigation lawyer can help you explore your options and determine the best course of action when pursuing legal recourse against an LLC with no assets.
Are There Alternatives to a Texas LLC Lawsuit?
When an LLC has no assets, suing might not always be the best option. Alternatives such as negotiation or settlement can offer quicker and less costly resolutions. By reaching an agreement, both parties can avoid the lengthy legal process and come to a mutually beneficial outcome.
Mediation and arbitration are also valuable tools for resolving disputes. These alternative dispute resolution methods often result in faster outcomes and can save time and money compared to a lawsuit.
They can be especially helpful if both sides are willing to compromise. In some cases, bankruptcy may be an option for the LLC. If the company files for bankruptcy, creditors may receive only a portion of what they are owed, depending on the available assets.
When Should I Hire a Texas Business Litigation Lawyer?
Involving an attorney early on is crucial when considering a Texas LLC lawsuit, especially if the company has no assets. A Texas attorney experienced in business disputes can help assess whether pursuing legal action is worthwhile, considering the LLC’s financial condition and the potential for recovering damages.
An attorney can also explore options like piercing the corporate veil, where the LLC’s owners may be held personally liable. Additionally, they can provide guidance on alternative dispute resolution methods, such as mediation or settlement, and advise on post-judgment collection efforts. Legal knowledge ensures that your rights are protected and increases the likelihood of a successful outcome in a complex case.
How Massingill Can Help
Suing an LLC with no assets can be complicated, but Massingill is here to provide the legal guidance you need. Our experienced attorneys can help assess the viability of your case, explore options like piercing the corporate veil, and guide you through alternatives such as negotiation or mediation.
We focus on protecting your rights and maximizing your chances of recovery, whether through settlement or in court. Call Massingill today to schedule a consultation, or fill out our online form to start discussing your lawsuit and find the best path forward for your situation.
Additional Resources
How Many DBAs Can an LLC Have in Texas?
How to Dissolve an LLC in Texas
How to Remove a Member From an LLC in Texas
Where to find our Austin office
Where to find our Abilene office
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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