Legal Question in Business Law in California

Re: LLC from sole proprietor

Well, maybe, maybe not, but first we have to clear up the nature of your business set-up before the alleged rip-off. Exactly what do you mean by a "sole proprietorship with others involved?"

A sole proporietorship can and usually does have "others involved," such as employees, customers, suppliers, lenders, etc., and if these peoples' roles are truly limited to those activities, you do indeed have a sole proprietorship.

If, however, for example, your co-worker is not so much an employee as a risk-sharing, reward-sharing co-collaborator, that person is probably a partner and your business is not a proprietorship, it is a partnership, and this could be true whether you have a partnership agreement or not, or whether you intended a partnership or not. Same could be true if your lender is not just someone who gave you money in exchange for a promissory note, but who is expecting a payoff or reward that depends in some way on the success of the business - that person may very well be a partner as a matter of law, whether this was written down or intended, or not.

The reason this is important is that persons who are "involved" as partners in a partnership owe a substantial duty of loyalty to the other partners and the partnership itself, and cannot just run off with its business ideas, secrets, customer lists, etc. and start a competing business. On the other hand, if this is not a partnership and these people are not partners, they probably have a perfect right to compete with you, although that right is somewhat limited by the possibility that taking your trade secrets would violate the law.

Proving that something was a trade secret is not that easy, however; for example, if you shared your customer information with someone not under a duty to keep it secret, your act of sharing it in the first place probably takes the information out of the "secret" category.

So, this is about as comprehensive an answer as I can give you based on the very limited information given. The essence is that people you marely encounter in business transactions owe you no duty not to compete, but partners do, and misappropriation of trade secrets is a tort, but customer information loses its trade secret nature if you carelessly share it with business contacts who haven't been told it is secret and owe you no other duty of allegiance.

Re: LLC from sole proprietor

They CAN do anything they like. Every crook does. Whether that gives you grounds to complain or sue depends upon the facts and evidence. Feel free to contact me to discuss your legal rights and remedies. I've handled litigation like this for over 30 years.