Suppose your LLC’s operating agreement contains a typical clause requiring all disputes to be resolved in binding arbitration instead of the court system.
Is it then safe to assume that all disputes among the LLC’s members...more
LLC members often hold their membership interests in a family trust. The benefits of trusts are well known — they generally allow assets to be easily transferred after death without the time, hassle, and expense of court...more
Most LLC operating agreements contain a “buyout” provision allowing the LLC or its remaining members to buy the membership interest of a departing member. Buyout provisions can be structured however the LLC members see fit. ...more
A huge THANK YOU to Ryan Lockhart — an excellent tax and estate planning attorney and podcast host at the McKenna Brink Signorotti LLP law firm in Walnut Creek, California — for having me on the podcast as a guest!
I am a...more
Can the sledgehammer remedies of California Penal Code section 496 — treble (triple) damages and attorney fees — apply for misappropriation of an LLC’s property?
The California Supreme Court is set to answer that question...more
8/20/2020
/ Attorney's Fees ,
Breach of Duty ,
CA Supreme Court ,
Fraud ,
Limited Liability Company (LLC) ,
Litigation Fees & Costs ,
Managing Members ,
Members ,
Misappropriation ,
Penal Code ,
Receiving Stolen Property ,
Remedies ,
Split of Authority ,
Theft ,
Treble Damages
LLC managers (or members vested with decision-making authority) are sometimes lulled into a false sense of security by “sole discretion” provisions in their LLC’s operating agreement. That can be a costly mistake....more
LLC membership interests are usually straightforward and can determined by simply reviewing the LLC’s operating agreement. The operating agreement typically lists the members. Sometimes the operating agreement will impose...more
A common LLC problem:
LLC members are ready to call it quits on the LLC and divide their interests in the LLC’s real property.
Some members may want to sell, receive cash, and recognize gains for tax purposes.
Other...more
5/18/2020
/ Corporate Dissolution ,
Franchise Tax Board ,
Internal Revenue Code (IRC) ,
Limited Liability Company (LLC) ,
Members ,
New Guidance ,
Post-Dissolution Suits ,
Real Estate Transactions ,
Real Estate Transfers ,
Section 1031 Exchange ,
Tax Appeals ,
Tax Court ,
Tenancy-in-Common
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