Legal Question in Business Law in California

Re: Llc

The person may be liable. There could be a fraudulent conveyance or even no conveyance and alter ego issues. We would have to review your documentation. Do you have a judgment against this person?

Re: Llc

The 'person' will only be liable if you can prove individual liability for the claims. If only the company/corporation is liable, then no.

Re: Llc

An individual is not usually liable for the debts, judgments, etc. of an LLC he or she owns, and therefore as a usual matter, closing LLC #1 and opening LLC #2 neither makes the owner nor LLC #2 liable for the debts and suits of LLC #1.

Having said that, I hasten to add that there are several exceptions and these exceptions occur rather often.

The first relies on an equitable theory that the owner of a business entity who operates the entity in disregard of its separate nature should not then be allowed to use its separate nature as a defense against personal liability. In a corporate context, this is called "piercing the corporate veil," and it is just as applicable to an LLC. Generally, piercing is possible when the LLC and the owner(s) fail to separate entity assets from personal assets, e.g. by commingling funds in a single bank account or pants pocket, failing to keep records, and otherwise treating the business as no different from the person.

The second way an LLC owner can get in personal trouble is by closing down the LLC and paying himself anything, or transferring any assets to himself, without paying all the creditors and making adequate allowance for other possible liabilities first. This is different from veil-piercing and can cause personal liability even if the LLC was operated meticulously.

The third possibly distinct liability trap for a careless LLC owner or owners is to cause the LLC to transfer or hide assets to place them out of a creditor's, or possible future creditor's, easy reach. This would result in a fraudulent transfer and could result in personal liability whether or not the LLC went out of business or was subject to veil piercing, especially if the transferred assets went to the owner, his family, etc.