Legal Question in Business Law in California
If I have personal unpaid debt can those creditors go after an LLC business that has my name on it, even though I never get any money from the business?
3 Answers from Attorneys
Potentially. But without having reviewing the operating agreement it is hard to tell for sure.
I'm somewhat in disagreement with the previous answer. Creditors of an unpaid personal debt that wasn't guaranteed by the LLC cannot proceed against the LLC. The LLC doesn't owe the personal debts. This would be an instance of 'reverse veil piercing' and is not supported by law.
The ONLY way a personal creditor can attack the business entity (other than through a guarantee of surety arrangement made by the business entity) is for the creditor to take you to court, get a judgment against you, and then begin levying upon your assets -- in which case the creditor might end up replacing you as an owner of the LLC -- but this is just another form of attack on your assets, and is in no way a case of "going after" the LLC in its own right.
Think of it this way. If you owned 100 shares of IBM stock, and owed $900 to the corner grocery, the corner grocery could sue you, win, and grab your IBM stock (or enough of it to satisfy the debt). The corner grocery couldn't, however, go after IBM itself for your debt.
You can be sued, and they can also name any business connected to you that was involved in the debt. If they get a judgement, they can levy on any assets you have, including income, ownership interests in businesses, investments, bank accounts, real property, personal property, etc.
Feel free to contact me if you need legal help defending you in litigation.
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