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I've done work for a former startup client in another state (AZ) for a few years and that work has come to an end. All that contracting work was done under my LLC (in DE) specifically created for that project, but now that it no longer has any revenue from anyone in that state, its probably time to dissolve it.

The former client wants to prevent me from doing my work in any other state (separate issue), but regarding the matter of dissolving my corp he claims that I am personally still bound by all conditions of the Agreement with his corp and mine and that dissolving my corp now would show it "was a sham corporation from the outset and that you were operating under the false guise of a legitimate [company]".

From having been around construction I noted that some builders have a separate LLC for each house they build, even if its in a larger development project of a community of homes -- and that project itself is a separate parent company. At some point after the house sells and the warranty expires, the builder dissolves the LLC. Are these builders doing something unethical? I thought the whole point of using a project scoped corp was to more easily put the project behind you at some point and move on with other business. Am I missing something?

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  • This may vary by state but in anecdotal experience and some quick Googling, it appears LLC owners like yoruself have a little more protection than executives of a corporation. Be careful not to conflate the two, though, as Dale mentioned. – A.fm. Jun 26 '20 at 14:23
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An LLC isn’t a corporation to start with

So it can hardly be a sham corporation, can it?

An LLC is a hybrid structure with some of the features of a corporation and some of the features of a partnership/sole trader. One of the features it shares with a corporation is that it is a legal person so, unless the contracts it entered explicitly bound you, they don’t bind you.

Get your own legal advice but winding up an LLC once it has served its purpose and it has no liabilities (including possibly contingent liabilities) is just business.

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  • Dale, the last couple lines either don't compute or could use a little more clarity. Winding up an LLC when its purpose is served and it has no liabilities sort of negates the need for a question. It seems OP is asking about a situation where, along the lines of what the other person said to him, he winds up the LLC but later that other person tries to hold him personally liable for something his LLC is supposed to be liable for under the contract. – A.fm. Jun 26 '20 at 14:14
  • Correct, I changed "corporation" to "company" since LLC v "corporation" is not the point. – StartupGuy Jun 26 '20 at 14:50
  • @A.fm. A liability is not the same as an obligation. – Dale M Jun 26 '20 at 23:22
  • @DaleM That is a correct statement. However, it is inapplicable in reply to my comment as I was talking about liabilities and not obligations. – A.fm. Jun 26 '20 at 23:26

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