Legal Question in Business Law in California

You need to speak to a lawyer about your specific situation. You may wish to require the managing member to reimburse the LLC for the money taken for personal use,or to treat that money as compensation from the LLC for services provided. There may be other approaches and things to be done, but nothing definitive can be said without a detailed review of the LLC, the monies in question, and the liabilities.

Mr. Perry is correct. There is no "magic bullet." You can't "un-ring a bell." But what you can do is take all reasonable steps to reverse unauthorized transactions and create a trail of documentation that as soon as discovered the improper conduct was stopped. If it is possible under the operating agreement and as a business reality to remove the managing member from control you should do so, as well as any other steps that would demonstrates commitment to maintaining the LLC as a proper legal entity going forward. Like a black mark on your credit report, you can't undo what has been done, but the more you do to clean it up plus the passage of time, the sooner it will cease to be relevant. Talk to a lawyer about the details of how best to do that in your specific situation.

This is a very fact intensive scenario and not one for which there is some out-of-the-box answer. But that said, it does not sound like this is an issue for which members need to be concerned about veil piercing at least not for now. In your case, there is not some outside plaintiff complaining of an injury. The fact that a errant member took advantage of the company means that the other members need to take steps to rectify this and perhaps hold that member accountable.

What you described may also be a crime. If you did nothing and an action was file and at that time the records were still in a mess and monies were all comingled, etc. I would say that there is a potential problem. Once, however, you take steps to correct all this there would be no real way to go back in the past and holding that against the members. If that makes sense.

If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.

Kind regards,

Frank

www.LanternLegal.com

866-871-8655

[email protected]

DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.

Correct the problem asap and properly document the records in doing so. You should hire counsel to assist in this if you don't already know how and what to do. If serious about hiring counsel to help in this, and if this is in SoCal courts, feel free to contact me.