The decision to quit a venture is never an easy one for an entrepreneur. When the decision is driven by financial reasons, as is often the case in a troubled economy, it can be tempting to simply walk away under the rationale that no new business means the business is dead. The excitement of new projects or the appeal of a fresh start under a new name can overshadow the headaches associated with a failing business. But as cases like Emily Lane Homeowners Association v. Colonial Development, LLC show, maintaining the shell of a company is an all-too-convenient move that leaves owners vulnerable to lawsuits and liability. The failure to properly wind up affairs may lead to a variety of repercussions.

After 20 years of employment, Rowena Cheung quit her job with Fada International, an importer of jewelry and precious stones. She not only left the company with trade experience, but also an extensive rolodex of client contacts which she used to launch her own jewelry business. However, Cheung had signed a non-disclosure agreement (NDA) before leaving the company, in which she had promised not to disclose the customer information. Her former employer, in an effort to maintain its position in the competitive jewelry import business, then filed a lawsuit against Cheung claiming that she had misappropriated customer information.

In 1996, a licensing manager for Taco Bell attended a trade show and came across a cartoon Chihuahua dog character called “Psycho Chihuahua.” The manager expressed an interest in using the character for its marketing campaigns, but after numerous focus groups and extensive discussions with the creators of the character, Taco Bell decided not to close a deal with the creators of the character.