Contract Found To Exist Despite Revocation Of The LLC’s Charter Five Years Before The Contract Was Signed

Nevada’s LLC Act requires LLCs to file annually a list of managers or managing members.  NRS 86.263.  If an LLC fails to do so, the Nevada Secretary of State may revoke the LLC’s charter and it will forfeit the right to transact business.  NRS 86.274(2)  Perhaps even more threateningly, NRS 86.361 provides that “All persons who assume to act as a limited-liability company without authority to do so are jointly and severally liable for all debts and liabilities of the company.”

With that as background, consider the following fact pattern.  The Secretary of State revokes an LLCs charter.  Five years later, the LLC enters into an agreement with another company.  Two individuals act “as and/or on behalf of the LLC.  The LLC fails to pay as required by the contract and the other party sues the LLC and the two individuals.  Less than a month later, the LLC is reinstated.  Such were the facts in Springhead, LLC v. Crowell, 2013 U.S. Dist. LEXIS 175847 (N.D. Ill. Dec. 16, 2013).

Can the individual defendants be held personally liable?  Reading only NRS 86.361, one might guess that they could.  U.S. District Court Judge John Z. Lee concluded otherwise, finding that under NRS 86.276 reinstatement is retroactive to the date on which the LLC forfeited its right to transact business.

For more on Nevada’s LLC Act, see my book, Bishop & Zucker on Nevada Corporations and Limited Liability Companies.