Legal Question in Business Law in California

Re: Multi Level Marketing

An MLM business might be a partnership, but more likely is not, and the participants' relationships and rights would be determined and enforced under the principles of contract law and perhaps the law of agency rather than partnership law (in most cases, at least).

The analytical starting point for an attorney would be to identify the relationships between the parties (buyer-seller, parent-subsidiary, debtor-creditor, etc.) that could have legal significance). Next, the attorney would want to look at the instruments that created those relationships to see what specific terms and provisions were contained therein, looking in particular for terms relating to default, termination, remedies, and others that bear upon the client's claims or defenses to another's claims.

Then, the attorney should inquire into special factors such as whether a party is in bankruptcy or court-supervised liquidation, whether a special relationship existed among the parties (perhaps a fiduciary or confidential relationship, for example).

Beyond that, it's hard to say where the inquiry leads. Unless there is a divorce or community property issues are really in play, however, the division of property (and allocation of debts and liabilities) won't have anything to do with family law.

Generally, when a business breaks up, some law or other will oblige the person or persons in control of its liquidation to take care of creditors before the first penny goes to insiders or former insiders of the liquidating business, be it a corporation, LLC, partnership, sole proprietorship or something else.

If there are a great many similarly-situated claimants, a class action might be suitable to enforce the claimants' similar claims against the dissolving entity.

Generally, it is still possible to sue a dissolved or dissolving business and its insiders (owners, officers, managers, directors) even after it goes out of "official" existence by filing papers to dissolve. The Legislature is well aware that businesses often pay their owners before their creditors when they fail and close their doors, and there are numerous laws to root out the absconding guilty ones and see that whatever assets remain go to the innocent outsiders. Bankruptcy law is not the only example of creditor protection.

I hope this discussion is useful, and feel free to contact me directly for a further answer based on more particulars.