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Alter Ego And The California LLC

Yesterday's post concerned a recent federal district court decision applying the corporate alter ego doctrine to a Nevada limited liability company. Bustos v. Dennis, 2018 U.S. Dist.  LEXIS 45764.  An update to this post noted that although Judge Dawson was under the impression that the Nevada Supreme Court had yet to rule on the question, it in fact had already done so in Gardner v. Eighth Judicial Dist. Court of State, 405 P.3d 651, 656 (Nev. 2017).  Judge Dawson, however, was correct in his "prediction" that the alter ego doctrine pertains to LLCs.

In contrast to Nevada, California has addressed the question of alter ego liability statutorily.  Corporations Code § 17703.04(b) provides:

A member of a limited liability company shall be subject to liability under the common law governing alter ego liability, and shall also be personally liable under a judgment of a court or for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation; except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers.

This provision was carried over from the California's prior Beverly-Killea Limited Liability Company Act (former Corp. Code § 17101(b)).  

 

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