Legal Question in Business Law in California

My business Partner and I started an LLC together in California a number of months ago. We never really got the business off the ground and have no assets or liabilities other than some expenses I paid for up to about $1,500. My business partner and I had a falling out a few months ago and ended the working relationship. I contacted my business partner to rectify our affiliation with eachother in the LLC and my business partner informed me he has transferred my 50% equity in the business into his name. The only way he could have done this would have been by forging my signature on legal documents. Do I have a case and what kind of punishment might my former business partner be facing?


Asked on 7/21/12, 3:39 am

1 Answer from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

In theory, co-owners of an LLC are (1) fiduciaries, meaning that they owe each other a duty of honest, open and ethical cooperation, see Corporation Code section 17153; and (2) bound contractually by the LLC's operating agreement (which you may not have drafted and formally adopted, but nevertheless exists and its terms can be inferred by a court of law, see Corporations Code sections 17001(ab), 17005(a) and 17059, for example). There is plenty of other ammunition in the LLC statutes that could be drawn upon as basis for a suit against an unfaithful or power-grabbing co-owner of an LLC.

As a practical matter, in your situation, it seems to me that this LLC was worthless and that you virtually abandoned it. What is the book value of your 50% equity, given that the LLC, in your own words, has no assets?

It seems to me that if you advanced $1,500 for an LLC that never transacted any business and has little or no net equity, you have at most a possible small-claims action against your erstwhile co-founder for his $750 half-share of the expenses you paid. Am I missing something, you did you give us only part of the story?

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Answered on 7/21/12, 12:24 pm


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