Legal Question in Business Law in California

Re: Llc

A newly-created LLC starts life with no assets, no liabilities, and no responsibility for any other person or entity's liabilities. That situation can change abruptly when the LLC's owners start to capitalize and operate it. The most likely-to-arise problem here is that assets of the old LLC will find their way into the new LLC, for example, its computer, its list of customers, its business ideas, etc.

These assets of the old LLC, tangible and intangible, should be used to satisfy the old LLC's obligations, including the judgments. If the assets find their way into the pockets, accounts, closets, gargages or basements of the old LLC's owners, or into the ledgers or offices of the new LLC, the creditors of the old LLC have a legal right to cry foul.

The way to stifle the cries is to make sure that ANY property of the old LLC is paid for by whomever or whatever ends up with them, at full market value. This applies to pencils, paper clips, gas in the tank of the company truck, ideas, trademarks, logos, computers and software, and anything of value the old LLC owned or had a right to use under a lease, license, loan or whatever.

This will put money in the old LLC's pocket, which can and must be applied to pay claims of its creditors. I do not know if there is a legal pecking order for payment of a failed LLC's creditors outside of bankruptcy, but in liquidating a failed LLC I don't think you can go far wrong by following the bankruptcy priority model - secured creditors, taxes, wages to outsiders, then unsecured creditors before the first dime - or the first paper clip - goes to the owners of the failed LLC or any successor LLC.