Legal Question in Business Law in California

An individual is always personally liable for his or her own actions, irrespective of whether they act on behalf of a corporate entity. So, the answer is yes, you can go after him personally for his own actions, the fact that he purported to act on behalf of an LLC does not protect him.

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It isn't as simple as the previous answer suggests. If it were, small businesses wouldn't bother with corporations or LLCs. Sure, a corporate director, officer or majority shareholder may bear some personal liability in one or more of three ways, but there remain questions as to who may bring an action, who is entitled to relief, and how the action must be pleaded. For example:

(In these examples, "insider" means a director, officer or a stockholder or member with enough ownership to have effective control)

(1) An insider may be criminally liable for illicit acts he/she caused the corporation to do, such as issuing stock without registering it, selling automobiles knowing the brakes are defective, etc., but only a district attorney or attorney general can bring criminal charges, and only on behalf of "the People" or some such denomination of a plaintiff.

(2) An insider may be civilly liable to the corporation or the LLC (as opposed to its individual owners) for mismanagement of various kinds, in which case a shareholder's deriviative suit might be brought by one or more shareholders to seek civil remedies on behalf of the corporation (or LLC).

(3) An insider may be reached personally by "piercing the corporate (or LLC) veil," also known as applying "alter ego" theory -- the corporation or LLC is being used by the insider as nothing more than an extension of him- or herself.

Since you and your group are neither prosecutors or offended shareholders (or members), if you are to reach the individual with your suit, you'd have to plead and prove that the business entity was the individual's alter ego (legal Latin for "other self") and this isn't always easy. Prevailing on an alter ego theory requires showing that the individual disregarded the entity by one or more abuses including commingling funds, failing to capitalize the entity adequately, failing to keep records or hold meetings, and so on, and further, you'd have to plead and prove that the entity was such a sham that to allow it to stand in the way of personal liability would result in a failure of justice, or permit a fraud to be perpetrated, or the like (different courts have expressed it differently).

I would advise bringing suit against the individual and the entity. However, before filing anything, an attorney would want to review all the facts carefully, to determine what charges are warranted against which parties, and allowing the complaint to focus on parties and claims that have clear merit. It should also be noted that there is a requirement that the plaintiff or plaintiffs have "standing" and are the "real party(ies) in interest" to bring the civil action; in other words, suit must be brought by an injured party and not merely by someone who knows wrongdoing is going on.

Please feel free to contact me directly if you'd like a further free analysis.

Sue him and the corporation for fraud, intentional misrepresentation, and conversion. The corporation cannot respond as it is suspended. Contact me directly.

Opinion??

If he has no money ["he's broke"], that is what you're going to get at the end of suing and spending a bunch of money doing so. The in's and out's of corporate status are irrelevant to that discussion, unless the corporations themselves have 'money' you could collect against if you got a judgment against them. The only valid reason to sue would be to seek a judgment in 'fraud' which could not be discharged in personal bankruptcy, and then hope to someday find income or assets in his name. We'd also have to talk about your 'standing' to sue. You'd have to have suffered compensable damages by his conduct. If you are serious about spending litigation money this way, then feel free to contact me.

Because you mentioned "he's broke," why are you wasting any further time pursuing a fruitless endeavor?

You also mentioned something about not setting up a franchise in California. Failure to comply with the provisions of California Franchise Investment Law (if he has been selling franchises) can subject the individuals behind the entity to personal liability. But again, if that's only one person, and he is broke, what's that going to do in the long run?

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney