If you are planning to sue a LLC, there are some potential problems to be aware of; that can become even more important when you later attempt to recover your judgment from that LLC.
This article is my opinion, and not legal advice. I am a judgment solutions expert, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.
Unlike most individuals; LLCs can very quickly decide to “die”, file for bankruptcy protection, transfer or hide their assets, sell themselves, hide, or change names.
Some LLC companies play the “hide the pea” game with related LLC “empty shell” companies; used as smokescreens to thwart judgment creditors. Some judgment debtors put their assets into several different LLCs, making it very hard to reach those assets. Some LLCs are formed for the purpose of financing assets, making sure that no creditors can reach those assets. This is how many rich people avoid paying taxes.
LLCs and other corporate entities operate, and are protected, by a complex set of laws that generally shield the owners from any personal liability. In California, a charging order is the only way to reach a judgment debtor’s interest in a LLC.
Some relevant California laws are Corporation Code sections 1502(b), 1505, 1701, 17057(b), 17061(b), and 15901.14. In most States, corporations and LLCs must name a natural person, or a company having a natural person available; as their agent for process of service, within the state they do business.
When researching a LLC or any entities related to them, your State’s Secretary Of State (SOS)’s website is usually the best place to start. LLCs and other entities, can name a service company to act as their agent for process of service. However, that service company must comply with the Corporations Codes and the Secretary Of State’s requirements.
You can put the name of the LLC, or their (e.g.) service company, and the SOS will show you their corporate number. If a LLC names a service company as its agent, only the name of that service company will appear on the SOS website.
At your State’s SOS website, you can also find out if your debtor is actually a corporation, limited liability company, a limited partnership, etc. If your debtor or their service company is not listed at the SOS site, perhaps they are probably operating as a DBA/fictitious name; and maybe the business owner is the person you should be suing.
The four most important things to check, before you sue a LLC, include:
1) Is the LLC making money? Are they still in business? Do they have any assets? If the answer for all three is no; then there may not be any reason to sue them; unless you can prove in court that the people behind them are alter egos of that LLC, if those people have some assets.
2) What is the LLC’s reputation on the web, and at the courthouse? If there are many judgments against them, or they have many people suing them, and/or if there are many complaints from several sources on the web; they may be having trouble, and collecting a judgment from them will be difficult, so perhaps attempt to settle with them instead?
3) Did you name your debtor’s corporate entity correctly on your lawsuit? Did you check for any other AKA names they may be using? They could be using several similar names. It is cheaper and easier to attempt to amend your lawsuit to add all their names, than to try to add those different names after you get your judgment.
RipOff LLC, is not the same as Rip Off, LLC, or The RipOff Group, LLC. Sometimes, one might be a LLC, and others might be a limited partnership, etc. If they were all (e.g., formed or filed) on the same date, and/or all have the same agent for process of service, and/or the same website, they may be AKAs of your LLC debtor.
If you want to use any official documents as evidence, (for example records from your SOS) purchase certified copies of them. If the judge agrees with your arguments and evidence, you might be able to include all the AKAs of your LLC debtor as defendants on your judgment.
4) Is there is a valid reason to add one or more persons as additional defendants in your lawsuit against the LLC? The best time to do this is before the judgment becomes final. It might be very expensive or impossible, to add individuals later, after the judgment is won.