Benefits of a Limited Liability Company in California

The benefits of a Limited Liability Company in California are the topic of this blog post. A Limited Liability Company (LLC) has several advantages over a corporation in that an LLC is not subject to the same onerous recordkeeping requirements of a corporation such as corporate minutes, bylaws, directors, and shareholders. An LLC also offers more asset protection as well. These advantages are the reason that forming an LLC in California has become more and more popular.

A California corporation does not offer the same asset protection features as an LLC in that although the personal creditors of a debtor-shareholder cannot directly take over ownership of the assets of the corporation they can obtain ownership of the stock of a debtor-shareholder in which case they step into the shoes and become a co-owner of the corporation which entitles them to the share of the debtor-shareholder of the corporation’s profits and to participate in the management of the corporation. And if they can obtain ownership of at least 51% of the stock of the corporation they can have the corporation liquidated and its assets sold to pay off the debt of the debtor-shareholder.

The law in California along with the law in most states is that a creditor cannot take the money or property of a California LLC to pay off the personal debts or liabilities of the owners of the LLC.

In California creditors are limited to certain specified remedies including

Obtaining a charging order requiring that the LLC pay the creditor money distributed to the debtor-owner;

Foreclosing on the debtor-owner’s LLC ownership interest, or

Getting a court to order the LLC to be dissolved and all its assets sold.

California allows the creditors of an owner of a California LLC to obtain what is known as a charging order the membership interest of the debtor-owner. A charging order is an order issued by a court directing the manager of an LLC to pay to the creditors of the debtor-owner any distributions of income or profits from the LLC that would otherwise be distributed to the debtor-member.

However a charging order has limitations as even creditors with a charging order in California only obtain the financial rights to payment of the debtor-owner, they do not participate in the management of the LLC. This means that no creditor can order the LLC to make a distribution that is subject to its charging order. Many creditors who obtain charging orders still end up with nothing because they can’t order any distributions and as a result they are not a very effective collection tool for creditors except in unusual circumstances.

The law in California states that a creditor who obtains a charging order but is not paid by the LLC is allowed to request a court order that the LLC membership interest of the debtor be foreclosed upon. However due to changes in California law that took effect in 2014, namely Corporations Code § 17705.03.b)(3) cannot order a foreclosure unless the creditor can make a showing that any distributions under a charging order will not pay the judgment debt within a reasonable time. Basically the creditor will have to show that the earnings of the LLC have been continually withheld for purposes of reinvestment instead of being distributed to the members of the LLC. This means that a creditor will have to wait for some time before any foreclosure can be ordered.

If the LLC interest of the debtor is foreclosed upon the court will order that the financial rights of the debtor in the LLC will be sold. In all likelihood the creditor would be the one purchasing the interest because few if any people would want to purchase those rights at the foreclosure sale. In the event that happens the creditor essentially becomes the permanent owner of the financial rights of the debtor, including the right to receive money from the LLC. However the creditor cannot participate in any way in the management of the LLC meaning that it cannot force the LLC to pay it or anyone else any amount of money. In fact it is possible that before the foreclosure sale the debtor or other members of the LLC will settle the debt with the creditor. If they do not settle the debt that means the debtor will not be entitled to any share of the assets of the LLC in the event it is dissolved.

California law does not allow the personal creditors of an LLC member to obtain a court order that the LLC be dissolved so that its assets can be sold to pay off the creditor.

In order to increase the level of asset protection the operating agreement for the LLC should include a provision that allows the other Members the right of first refusal if another Member wishes to sell their interest in the LLC, or if a creditor obtains a charging order against a Member.

Most authorities recommend that an LLC should have at least two members to increase the potential liability protection from personal creditors. This is due to the fact that it is at least theoretically possible that a California court could agree with what a growing number of courts in other states have done and apply a different rule for a single member LLC.

Attorneys or parties in California that would like to view a portion of a sample 9 page California Limited Liability Company Operating Agreement that includes a provision that allows the other Members the right of first refusal if another Member wishes to sell their interest in the LLC, or if a creditor obtains a charging order against a Member sold by the author can see below.

The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California and Federal litigation since 1995.

If you enjoy this blog post, tell others about it. They can subscribe to the author’s weekly California and Federal legal newsletter by visiting the following link: http://www.legaldocspro.net/newsletter.htm

Copyright 2015 Stan Burman. All rights reserved.

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

These materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

 

Judgment Debtor Examination for a corporation in California

A Judgment Debtor Examination for a corporation in California is the topic of this blog post.   Code of Civil Procedure section 708.150 specifies the procedure in California for examining a corporation, partnership, association, trust, or other organization. The term JD Exam will be used in this blog post however this procedure is also known by various names including an examination of judgment debtor or order to appear for examination (ORAP).

A JD Exam is basically just like a post-judgment deposition and is used to identify property in the possession or control of the judgment debtor that can be used to satisfy the judgment. The California Courts have ruled that the purpose of the JD Exam is to require the judgment debtor to give information regarding their property and the judgment creditor is allowed the widest scope of inquiry concerning all property and business affairs of the judgment debtor.

I want to emphasize that if you want to schedule a JD Exam for any corporation or other fictitious entity in California you should always specify the name of an officer or manager if you have one on the application and order for appearance and examination using California Judicial Council Form EJ-125 as an officer, manager, etc of the fictitious entity. This is due to the fact that the great majority of the time the sheriff will refuse to enforce a bench warrant issued against a corporation that does not name a specific individual on the grounds that it is clearly not practical to arrest a corporation. In situations where the examination order does not specify a particular person who is to appear it is a good idea to request a bench warrant or order to show cause (OSC) be issued against the person who was served with the original examination order on the corporation’s behalf as this will specifically identify a particular person for the sheriff to arrest.

Code of Civil Procedure section 708.150 states that,

“(a) If a corporation, partnership, association, trust, or other organization is served with an order to appear for an examination, it shall designate to appear and be examined one or more officers, directors, managing agents, or other persons who are familiar with its property and debts.

(b) If the order to appear for an examination requires the appearance of a specified individual, the specified individual shall appear for the examination and may be accompanied by one or more officers, directors, managing agents, or other persons familiar with the property and debts of the corporation, partnership, association, trust, or other organization.

(c) If the order to appear for the examination does not require the appearance of a specified individual, the order shall advise the corporation, partnership, association, trust, or other organization of its duty to make a designation under subdivision (a).

(d) A corporation, partnership, association, trust, or other organization, whether or not a party, may appear at an examination through any authorized officer, director, or employee, whether or not the person is an attorney.”

Any JD Exam will be much more effective if the judgment creditor requests that the judgment debtor produce in court all documents that detail their assets and liabilities. Any person that is an officer, director or a managing agent of a fictitious entity may be served with a notice to appear and produce documents and other tangible evidence in his or her possession pursuant to Code of Civil Procedure § 1987(b), (c).  The attorney of record for the fictitious entity may be served by mail on behalf of the corporate judgment debtor.

The notice to appear and produce documents must be personally served at least 20 days before the examination date (25 days if served by mail.) The notice to appear and produce documents should be served with the examination order (or sooner). See Lee v. Swansboro Country Property Owners Ass’n (2007) 151 Cal.App. 4th 575, 582 (citing text).

I want to stress that you should always provide the witness with a check for the witness fee of $35.00 per day plus the mileage fee of $.20 per mile each way to and from the courthouse at the time that the notice to appear and produce documents is served. If you do not do so the witness cannot be compelled to appear and produce documents.

Attorneys or parties in California that would like to view a portion of a sample 12 page notice to appear and produce documents at hearing designed for a corporate judgment debtor in California including brief instructions, citations to case law and statutory authority, sample list of documents to be produced and proof of service sold by the author can see below.

The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California and Federal litigation since 1995.

If you enjoy this blog post, tell others about it. They can subscribe to the author’s weekly California and Federal legal newsletter by visiting the following link: http://www.legaldocspro.net/newsletter.htm

Copyright 2015 Stan Burman. All rights reserved.

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

These materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

Motions to strike in California

Motions to strike in California are the topic of this blog post. This post will discuss the filing of a motion to strike a complaint, or portions of a complaint in California.

In the State of California a motion to strike may be filed to strike any irrelevant matter inserted in any pleading, and to strike any pleading or part thereof not drawn in conformity with the laws of this state. See Code of Civil Procedure § 436.

A California Court of Appeal has ruled that if a claim of right appears on the face of a complaint which is legally invalid that the complaint is subject to a Motion to Strike.

For instance if a complaint requests attorney fees, yet the complaint fails to allege a contractual or statutory basis which entitles the plaintiff to recover attorney fees then the request for attorneys fees is subject to a motion to strike. And if the complaint requests any other relief to which plaintiff is not entitled to, that portion of the complaint is also subject to a motion to strike.

However there are limitations as to what evidence can be considered at the hearing on the motion to strike. For example extrinsic evidence cannot be considered by the court in ruling on any motion to strike.

The party moving to strike cannot support their motion to strike with any affidavits, declarations, or any other matters outside the four corners of the pleading containing extrinsic evidence that allegations in the complaint are false or a sham because any such challenges only lie on the face of the complaint.

The issue of whether or not to file a motion to strike should only be made after legal research on whether plaintiff is requesting relief to which they are not entitled, or if the complaint contains irrelevant matter. If so, then a motion to strike should be filed.

Attorneys or parties in California who wish to view a portion of a sample motion to strike to a complaint sold by the author please see below.

Attorneys or parties in California that would like more information on a California law and motion litigation document package containing over 55 sample documents including both a sample motion to strike and a sample opposition to a motion to strike can use the link shown below.

California law and motion litigation document package

The author of this article, Stan Burman, is a freelance paralegal who has worked in California and Federal litigation since 1995.

*Do you want to use this article on your website, blog or e-zine? You can, as long as you include this blurb with it: “Stan Burman is the author of over 300 sample legal documents for California and Federal litigation and is the author of a free weekly legal newsletter. You can receive 10 free gifts just for subscribing. Just visit http://freeweeklylegalnewsletter.gr8.com/ for more information.

Follow the author on Twitter at: https://twitter.com/LegalDocsPro

You can view sample legal document packages for sale by going to http://www.legaldocspro.net

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

The materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

 

Podcast on affirmative defenses to a California eviction complaint

A podcast on affirmative defenses to a California eviction complaint is the topic of this blog post.

LegalDocPro and Stan Burman proudly announce that the first ever podcast based on his hundreds of blog posts is now live.  This is the first of several podcasts based on the blog posts of Stan Burman.  You can listen to the podcast using the embedded player below.

 

Be sure to leave a comment and let us know what you think of the podcast.

The author of this blog post, Stan Burman, is an entrepreneur and freelance paralegal who has worked in California and Federal litigation since 1995 and has created over 300 sample legal documents for California and Federal litigation.

*Do you want to use this article on your website, blog or e-zine? You can, as long as you include this blurb with it: “Stan Burman is the author of over 300 sample legal documents for California and Federal litigation and is the author of a free weekly legal newsletter. You can receive 10 free gifts just for subscribing. Just visit http://freeweeklylegalnewsletter.gr8.com/ for more information.

Follow the author on Twitter at: https://twitter.com/LegalDocsPro

You can view sample legal document packages for sale by going to http://www.legaldocspro.com/downloads.aspx

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

The materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

 

 

 

Motion to compel compliance with a deposition subpoena in California

A motion to compel compliance with a deposition subpoena in California is the topic of this blog post. Code of Civil Procedure section 2020.410 states in pertinent part that prior to trial, a party may serve a deposition subpoena for the production of business records on a nonparty. If the nonparty fails to comply with the deposition subpoena a motion compel compliance may be filed. This blog post will discuss situations where a nonparty has been served and failed to make any appearance at the deposition or produce the requested business records.

A California Court of Appeal has ruled that the provisions of section 2025 of the Code of Civil Procedure clearly apply to deposition subpoenas. Thus the motion to compel must comply with the various requirements found in section 2025.

Code of Civil Procedure section 2025.480 states in pertinent part that,

“(a) If a deponent fails to answer any question or to produce any document, electronically stored information, or tangible thing under the deponent’s control that is specified in the deposition notice or a deposition subpoena, the party seeking discovery may move the court for an order compelling that answer or production.

(b) This motion shall be made no later than 60 days after the completion of the record of the deposition, and shall be accompanied by a meet and confer declaration under Section 2016.040.”

I want to point out that the moving party must show the court that they have made a reasonable effort to meet and confer to resolve the issue before filing their motion to compel and the motion must include a meet and confer declaration detailing the efforts to resolve the issue informally.

The moving party may also seek sanctions for their expenses incurred in connection with both the refusal to comply with the deposition subpoena and the preparation and filing of the motion to compel.

It is well settled in California that the scope of permissible discovery is very broad and any party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence. Any doubts regarding relevance are generally resolved in favor of allowing the discovery.

In fact a California Court of Appeal recently ruled in a published case that although the trial court has discretion in deciding whether to grant or deny a discovery motion it is obligated to construe the discovery statutes liberally in favor of disclosure, and that the broad scope of discovery includes the discovery of information from a nonparty.

A fundamental principle of the common law is that “`”the public … has a right to every man’s evidence.” Trammel v. United States (1980) 445 U.S. 40, 50, 100 S.Ct. 906, 63 L.Ed.2d 186).

Under California law, if good cause has been shown for the production of a writing in a legal proceeding, no person has a right to refuse production of the writing in the absence of a statutory privilege permitting such refusal. “Except as otherwise provided by statute: [¶] . . . [¶] (b) No person has a privilege to refuse to disclose any matter or to refuse to produce any writing, object, or other thing.” Evidence Code section 911 subdivision (b).

Attorneys or parties in California that would like to view a portion of a 16 page sample motion to compel compliance with a deposition subpoena for attendance at deposition and for production of business records containing brief instructions, a memorandum of points and authorities with citations to case law and statutory authority, sample declaration and proof of service sold by the author can see below.

The author of this blog post, Stan Burman, is an entrepreneur and freelance paralegal who has worked in California and Federal litigation since 1995 and has created over 300 sample legal documents for California and Federal litigation.

*Do you want to use this article on your website, blog or e-zine? You can, as long as you include this blurb with it: “Stan Burman is the author of over 300 sample legal documents for California and Federal litigation and is the author of a free weekly legal newsletter. You can receive 10 free gifts just for subscribing. Just visit http://freeweeklylegalnewsletter.gr8.com/ for more information.

Follow the author on Twitter at: https://twitter.com/LegalDocsPro

You can view sample legal document packages for sale by going to http://www.legaldocspro.com/downloads.aspx

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

The materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

 

 

California and Federal litigation

%d bloggers like this: