Almost one year ago, in Switzer v. Wood, California’s Fifth Appellate District held that an LLC manager or member participating in the theft of the LLC’s property could face liability under Penal Code section 496 — a statute...more
4/20/2020
/ Appeals ,
Attorney's Fees ,
Breach of Duty ,
Fraud ,
Limited Liability Company (LLC) ,
Managing Members ,
Members ,
Misappropriation ,
Misrepresentation ,
Penal Code ,
Punitive Damages ,
Receiving Stolen Property ,
Split of Authority ,
Theft ,
Treble Damages
Under the “default” rules of most limited liability company laws, including California’s Revised Uniform Limited Liability Company Act, LLC managers owe fiduciary duties to the LLC and its members. Those default fiduciary...more
Limited liability companies (LLCs) are a popular modern form of business entity celebrated for their ease of implementation and informality. Despite the enactment of uniform legislation providing the “default” rules for LLC...more
Today’s post focuses on a thorny issue arising from the LLC Jungle — can derivative claims be pursued on behalf of a dissolved or cancelled LLC?
In short, the answer is “yes” — but there are nuances to be aware of....more
In the LLC Jungle, allegations of “misappropriation” are common. LLC members and managers sometimes improperly divert the LLC’s funds and property for their own personal use. That bad behavior usually leads to claims of...more
12/16/2019
/ Appeals ,
Attorney's Fees ,
Breach of Duty ,
Fiduciary Duty ,
Limited Liability Company (LLC) ,
Managing Members ,
Members ,
Misappropriation ,
Penal Code ,
Receiving Stolen Property ,
Remedies ,
Stolen Goods ,
Theft ,
Treble Damages
Not long ago, The LLC Jungle posted an article addressing the perils of attorney representation of an LLC with two equal “co-managing members.” See Why Having “Co-Managers” for Your LLC is a Terrible Idea.
This post...more
11/20/2019
/ Appeals ,
Attorney Malpractice ,
Attorney Representation Agreements ,
Breach of Duty ,
Business Disputes ,
Client Representation ,
Copyright Infringement ,
Copyright Litigation ,
Corporate Counsel ,
Duty of Care ,
Involuntary Dissolution ,
Limited Liability Company (LLC) ,
Managing Members ,
Members ,
Operating Agreements ,
Reaffirmation ,
Summary Judgment
One of the hot button issues frequently leading to litigation in “The LLC Jungle” is the removal of an LLC’s manager.
Thoughtfully drafted LLC Operating Agreements contain provisions addressing the criteria and procedures...more
Sister blog The LLC Jungle recently posted about an opinion from California’s Sixth District Court of Appeal — Orozco v. WPV San Jose, LLC — describing the legal difference between an LLC tenant, and the LLC’s owner who...more
9/26/2019
/ Appeals ,
Commercial Leases ,
Commercial Tenants ,
Damages ,
Fraud ,
Fraudulent Inducement ,
Guarantors ,
Landlords ,
Limited Liability Company (LLC) ,
Remedies ,
Rescission ,
Reversal ,
Separate Entity Rule
A limited liability company (LLC) is a popular form of business entity. One of the main reasons for forming any business entity is to limit liability. In general, without a showing of “alter ego” liability, a business owner...more
9/18/2019
/ Appeals ,
Business Ownership ,
Commercial Leases ,
Commercial Tenants ,
Damages ,
Fraud ,
Injury-in-Fact ,
Landlords ,
Limited Liability Company (LLC) ,
Remedies ,
Rescission ,
Reversal ,
Trial Court Orders
“Piercing the corporate veil” — also referred to as “alter ego” liability — is a familiar concept under California law. Ordinarily, a corporation or other entity (such as an LLC) is considered a legal entity separate and...more
8/13/2019
/ Alter Ego ,
Appeals ,
Business Assets ,
Business Ownership ,
Cal Code of Civil Procedure ,
Corporate Veil ,
Corporations Code ,
Debt Collection ,
Debtors ,
Judgment Creditors ,
Limited Liability Company (LLC) ,
Personal Liability ,
Piercing the Corporate Veil ,
Reversal
Under California’s Proposition 60, which became enacted in 1986 as Revenue and Taxation Code section 69.5, any “person” over the age of 55 years may transfer the base year value of his or her residential property to any...more
7/8/2019
/ Appeals ,
Business Formation ,
Construction Loans ,
County Assessors ,
Limited Liability Company (LLC) ,
Primary Residence ,
Property Tax ,
Residential Property Owners ,
Reversal ,
Tax Appeals ,
Tax Basis ,
Transfer Taxes
The trend in most real estate-related LLCs is to have a single appointed manager. Under the LLC’s operating agreement, the manager typically has authority to make the day to day business decisions on behalf of the LLC, while...more
6/10/2019
/ Appeals ,
Attorney Representation Agreements ,
Co-Management ,
Conflict Resolution ,
Disqualification ,
Lack of Authority ,
Limited Liability Company (LLC) ,
Limited Partnerships ,
Managing Members ,
Operating Agreements ,
Partnership Agreements ,
Petition for Partition ,
Real Estate Investments
Under California’s Revised Limited Liability Company Act (“RULLCA”), LLC participants have substantial freedom to structure their relationship in a customized manner under their governing operating agreement. But one of the...more
5/16/2019
/ Attorney's Fees ,
Books & Records ,
Breach of Duty ,
Fiduciary Duty ,
Good Cause ,
Inspection Rights ,
Limited Liability Company (LLC) ,
Managing Members ,
Members ,
Operating Agreements ,
Prevailing Party ,
RULLCA
Many California-based LLC managers and members are lured by the potential benefits of forming the LLC under the laws of a jurisdiction outside of California. Delaware can be an enticing option. Delaware is known for its...more
4/25/2019
/ Breach of Duty ,
Business Formation ,
Business Property ,
Choice of Entity ,
Civil Liability ,
Corporate Dissolution ,
Fiduciary Duty ,
Forum State ,
Jurisdiction ,
Limited Liability Company (LLC) ,
Litigation Fees & Costs ,
Managing Members ,
Members ,
Multidistrict Litigation ,
Multistate Corporations ,
Out-of-State Companies ,
State of Incorporation
Most LLC Operating Agreements contain a provision describing the “purpose” of the business.
These “purpose statements” can be extremely broad and open-ended, parroting the boilerplate language required to be present in the...more
One of the recurring issues I see in my litigation practice is LLC managers engaging in “questionable conduct” with third parties — outsiders to the LLC.
By “questionable conduct,” I generally mean binding the LLC to...more
2/25/2019
/ Actual or Constructive Knowledge ,
Agents ,
Appeals ,
Indemnity Agreements ,
Lack of Authority ,
Limited Liability Company (LLC) ,
Managing Members ,
Operating Agreements ,
RULLCA ,
Third-Party Relationships ,
Unauthorized Transactions
A recent LLC Jungle blog post covered the impact of “conversion” from a different form of entity to an LLC — generally, the entity’s rights and liabilities remain the same.
But what about a more sophisticated transaction...more
It is no secret that LLC managers enjoy a lot of discretion regarding how they operate the LLC. Members of the LLC often find it difficult to challenge the manager’s decisions on key transactions, investments, and other...more
1/14/2019
/ Appeals ,
Contract Terms ,
Covenant of Good Faith and Fair Dealing ,
DE Supreme Court ,
Discretionary Functions ,
Fiduciary Duty ,
Inherent Authority ,
Limited Liability Company (LLC) ,
Managers ,
Members ,
Operating Agreements ,
Selling a Business
Not much, really. While the entity’s form and structure morph to an LLC, the rights and liabilities of the entity are generally unaffected.
Under California’s statutes governing the conversion of an entity to an LLC...more
LLCs are celebrated for allowing business partners to freely define their relationship by contract — i.e., the LLC operating agreement. The operating agreement generally covers all of the important aspects of the company and...more
11/26/2018
/ Capital Contributions ,
Contract Amendments ,
Corporate Dissolution ,
Dismissals ,
Family Businesses ,
Limited Liability Company (LLC) ,
Managing Members ,
Member Removal ,
Membership Interest ,
Motion to Dismiss ,
Operating Agreements
There are not many published California Court of Appeal opinions providing guidance for LLC managers and members. That’s why it’s an “LLC Jungle” out there.
While unpublished opinions are not binding precedent outside of...more
10/22/2018
/ Bad Faith ,
Breach of Duty ,
Creditors ,
Debtors ,
Default ,
Demurrers ,
Distribution Rules ,
Fiduciary Duty ,
Limited Liability Company (LLC) ,
Managing Members ,
Membership Interest ,
Operating Agreements
The “Seven Critical Mistakes LLCs Make” Series -
This series of posts covers some of the most serious mistakes that LLCs regularly make. Here are...short summaries of each:
Choosing the Wrong Business Partners —...more
10/8/2018
/ Alter Ego ,
Apparent Authority ,
Business Divorce ,
Business Formation ,
Business Partners ,
Covenant of Good Faith and Fair Dealing ,
Due Diligence ,
Duty of Loyalty ,
Fiduciary Duty ,
Founding Members ,
Guaranty Claims ,
Intellectual Property Protection ,
Limited Liability Company (LLC) ,
Managing Members ,
Membership Agreements ,
Membership Interest ,
Operating Agreements ,
Prohibited Transactions ,
Secured Debt ,
Trade Secrets