Presenting a live 90-minute webinar with interactive Q&A Piercing the LLC Veil: Avoiding Member Liability for Business Debts Protecting the Limited Liability Benefits of LLCs Amid Evolving State Law TUESDAY, OCTOBER 13, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Markus May, Esq., May Law Firm , Naperville, Ill. Paul Porvaznik, Davis McGrath LLC , Chicago The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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PIERCING THE LLC VEIL: BEST PRACTICES TO AVOID MEMBER LIABILITY FOR BUSINESS DEBTS October 13, 2015
Markus May Markus May is the principal attorney of May Law Firm Ltd. which serves business clients throughout the Chicago area. He is a client focused business attorney with knowledge in a broad range of industries. As a mergers and acquisitions attorney he has represented numerous clients with respect to business sales and purchases. Mr. May also acts as general outside business counsel to small midmarket companies where he helps them solve business related legal problems. As a transactional attorney he often drafts shareholder agreements, operating agreements, distribution and manufacturing agreements, leases, supplier agreements, customer agreements, and numerous other contracts and documents for businesses. Mr. May has been the Chairman of the Business & Securities Law Section Council of the Illinois State Bar Association, Chairman of the Chicago Bar Association Business Law Committee, Chairman of the Chicago Bar Association Mergers and Acquisitions Sub-Committee, and Chairman of the DuPage County Bar Association Business Law Committee. He is a current newsletter editor for the Business & Securities Law Section Council of the Illinois State Bar Association and a former editor of the DuPage County Bar Brief. He currently is a member of the Chicago Bar Association Business Law Committee and M&A subcommittee and a past member of the American Bar Association Business Law Committee. As a member of the Institute of Illinois Business Law he helps draft Illinois statutes that impact businesses. Mr. May served on the Midwest Business Brokers and Intermediaries board of directors and chaired the MBBI Meetings Committee. An accomplished author and speaker, Mr. May has published numerous legal and newspaper articles related to business law, including protecting business owners from personal liability, mergers and acquisitions, drag-along rights, and other topics. He appeared on two Illinois State Bar television programs where he taught viewers about finding a business to buy and the business buying process. He speaks frequently at seminars on business topics and graduated from the University of Colorado where he was a member of the law review. Markus is married with two children, enjoys skiing, basketball, and racquetball and is involved with his church as a small group leader. May Law Firm ,Ltd. 400 E. Diehl Road, Suite 310 Naperville, IL 60563 630 – 864 – 1004 mmay@illinois-business-lawyer.com
Paul B. Porvaznik Davis McGrath LLC Paul Porvaznik has practiced law since 1997, primarily in the areas of general civil litigation, mechanics liens, landlord-tenant law, collections, post-judgment enforcement and general business disputes. He has successfully prosecuted and defended both jury and bench trials in various State and Federal courts. Paul contributes regularly to the Commercial Litigation and Lawyer’s Forum columns in the Chicago Daily Law Bulletin . Paul’s articles have also run in the Chicago Bar Association Record , the Illinois State Bar Association’s ISBA Journal and he has been published several times in The Computer & Internet Lawyer magazine. Paul has authored and updated the Illinois Institute for Continuing Legal Education (IICLE) Quick Guide entitled Forcible Entry and Detainer Actions for the years 2012 and 2015. Paul has also given presentations to the Chicago Bar Association Commercial Litigation Committee, the Illinois Creditors Bar Association, and a day-long Continuing Legal Education seminar on Piercing the Corporate Veil through the National Business Institute in Altoona, Wisconsin on a variety of commercial litigation topics. Paul graduated from the DePaul College of Law in 1996 and obtained his undergraduate degree from Boston University in 1993. pporvaznik@davismcgrath.com 312.332.1506 Blog: http://paulporvaznik.com / Twitter: @Paul Porvaznik
Limited Liability – or not? • A limited liability company is a separate and distinct legal entity from its owners and managers and from other companies with which it may be connected. Therefore these other people and entities are generally not liable for the company’s debts. • However there are some instances where the company entity will be disregarded and the “corporate veil” can be pierced so the owner’s assets are at risk. 8
Questions for Owners • Why do (did) you want to form a corporation or LLC to do business? • Do you like Personal Guarantees? Why not? • You are always personally responsible for your own actions, but do you know that if you don’t run your business properly, you can be personally liable for the debts of the business even if it is properly registered with the Secretary of State? 9
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How to Present to Clients Company Owners Corporate Veil 12
How to Present to Clients Company Owners Corporate Veil 13
Who can be liable under the doctrine? • Shareholders of companies. • Parent Companies • Sister Companies • Non-Shareholders? • Lenders? 14
Non-shareholder liability States that allow non-shareholder liability under piercing or alter-ego theory: Alabama, Alaska, Colorado, Connecticut, Delaware, Hawaii, Indiana, Louisiana, Mass., Minn., Montana, Nebraska, Nevada, New York States that do not allow piercing against a non- shareholder: Maine, Maryland, North Carolina, Texas 15
Non-shareholder liability • Buckley v. Abuzir, 2014 IL App (1 st ) 2014 (dismissal of complaint reversed) • Konrad Motor & Welder Service, Inc. v. Magnetech Industrial Services, Inc ., 973 N.E.2d 1158, 1165 (Ind. Ct. App. 2012) • Roohan v. First Guarantee Mortgage, LLC, 97 A.D.3d 891 (N.Y. App. Div. 2012) 16
What about LLC’s? • Statutorially provided for in • Cal. Corp. Code § 17703.04(b). • Colorado C.R.S.A. § 7-80-107 • Florida 608.701 • Minnesota 322B.303(2) • Washington State RCWA 25.15.060 (Effective until January 1, 2016) • Wyoming § 17-29-304(b) 17
What about LLC’s? • However this is also an Equitable Doctrine…..created by courts • Therefore – YES – Members of LLC’s can be liable under the Piercing the Corporate Veil Doctrine even absent a statute. • If your state hasn’t yet – it will when a judge finds a case where they want to promote equity 18
Reverse Piercing and Single Member LLC’s • Subjects the entity to liability for the acts of its owners. • May be used to make a subsidiary corporation liable for the actions of its parent entity when the use of the subsidiary entity by the parent entity is wrongful. • Can’t be brought by the parent as a shield 19
LLC Charging Order Confusion • Cases such as Albright and Olmstead hold that the ownership interest of a single member LLC may be turned over to creditors – this is not veil piercing • Multiple owner LLC’s the creditor is generally limited to receiving the distributional interest – and can be stuck with phantom income • With a corporation the stock can be turned over to creditors whether single or multiple owners 20
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