When dissolving a professional corporation, doing so does not terminate outstanding potential liabilities. Under Pennsylvania law, dissolution of the corporate entity neither eliminates nor impairs any remedy available to or against the corporation or its directors, officers or shareholders for any right or claim existing, or liability incurred, prior to the dissolution if the claim is brought within two (2) years of dissolution and within the applicable statute of limitations for the type of claim. 15 Pa.C.S.A. § 1979(a).
As for potential liability for shareholders, if a claim is brought within the two-year period after dissolution, the shareholder’s liability is limited to the lesser of the shareholder’s pro rata share of the claim or the amount distributed at dissolution to the shareholder. 15 Pa.C.S.A. § 1979(c).
There are two main considerations regarding retention of business records and related documents when dissolving a corporation, potential lawsuits and the IRS. The IRS recommends that individuals and corporations retain documents for the seven (7) years to insure they have the necessary documents to defend themselves if an audit occurs. With non-tax related documents, the retention time is driven by the applicable statute of limitations.
The following documents fall in the tax category: payroll quarterly reports, W-2s and 1099s, tax returns, 401(k) and corporate retirement information (e.g. employee request for changes, distributions, enrollments), stock certificates and old corporate documents, QuickBook records (these are electronic). These documents should all be retained for seven (7) years as they could be helpful in defending an IRS audit.
Pursuant to 42 U.S.C. § 1320a-7a(c)(1), the statute of limitations for Medicare fraud claims is six (6) years. Thus, Explanation of Benefits (EOBs) and meaningful use source documents should be retained for six years.
Although some documents from the preceding paragraphs may be useful in potential litigation, six or seven years is longer than any applicable statute of limitations. The following documents should be held for a minimum of four (4) years: back-up documentation for accounts payable, EOBs, loan payoff documentation, personnel files, physician contracts, merger agreements, old vendor contracts, back-up documentation for accounts payable, and loan payoff documentation.
Under Pennsylvania law, the statute of limitations for breach of contract is four (4) years. 42 Pa.C.S.A. § 5525. Any other type of claim the corporation might be liable for would have a shorter statute of limitations than that of breach of contract. Thus it is recommended that these documents be retained for four years.
Although these policies can be expensive, the cost can pay for itself if needed to defend a claim brought after dissolution.
Jake is an associate in the litigation department. He concentrates his practice in the areas of civil, commercial and municipal litigation, complex insurance coverage and bad faith litigation, as well as health law. firstname.lastname@example.org, 610-701-3278.