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Jane T (LLC)
Jane T (LLC), Attorney
Category: Business Law
Satisfied Customers: 8435
Experience:  Worked in corporation's law department; business formations, formalities, and other business matters
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If a non profit corporation needs to shut down,

Resolved Question:

If a non profit corporation needs to shut down, who is responsible for paying any debt not covered by the assets.
Submitted: 9 years ago.
Category: Business Law
Expert:  Jane T (LLC) replied 9 years ago.

Dear jmloandmark,

If a non-profit corporation has been properly formed and run (meaning all legal corporate formalities have been followed, such as keeping corporate accounts separate from personal accounts and other legal corporate requirements have been met), and there have been no personal guarantees or other guarantees regarding payment from shareholders, owners, or other parties, and no fraud has been perpetrated by the corporation or its owners or board of directors nor have they breached any duties to the corporation, then the general rule is that corporate debts (even if the corporation is a non-profit) are payable only from corporate resources and, if there are insufficient resources to pay off all debts (note that state laws normally indicate the order in which corporate obligations must be paid off), unfortunately, those creditors do not have other recourse and may go unpaid. This is known as the principle of limited liability, and it is one of the main reasons why persons form corporations or LLCs.

However, because each situation is different, each state's laws are different, and many corporate owners may not realize when they sign guarantees or when the documents they sign may make them personally liable for debts, it is important to have the assistance of legal counsel in closing down a business (and state laws do have requirements as to how a business must properly be closed down) to help prevent any creditors or other parties from filing suit against the corporation or its owners, board or directors, or officers.

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Customer: replied 9 years ago.
the answer is to general because of the state laws. I was hoping to get an answer regarding my state of Minnesota.