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California Revised Uniform Limited Liability Company Act: Alter Ego and the Nevada LLC

California’s version of the Revised Uniform Limited Liability Company Act expressly subjects members to potential alter ego liability:

 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.

Cal. Corp. Code § 17703.04(b).

The situation is less clear in the case of limited liability companies formed under Nevada law, as observed by U.S. District Court Judge Jennifer A. Dorsey:

The Nevada Supreme Court has not expressly held that the laws for piercing the corporate veil under the alter-ego doctrine apply to LLCs, but it has applied those rules in the LLC context, “assum[ing] without deciding that” the corporate analysis applies.

Pharmaplast S.A.E. v. Zeus Medical Holdings, LLC, et al. Case No. 2:15-cv-002432-JAD-PAL. (D. Nevada, March 14, 2017) (footnote omitted citing Webb v. Shull, 270 P.3d 1266, 1271 n.3 (Nev. 2012) and JSA, LLC v. Golden Gaming, Inc., 2013 Nev. Unpub. LEXIS 1449 (Nev. 2013)).  Judge Dorsey could have, but did not mention, that the Ninth Circuit Court of Appeals has similarly assumed, but not decided, that members of a Nevada LLC at risk of alter ego liability. Volvo Constr. Equip. Rents, Inc. v. NRL Rentals, LLC, 614 Fed. Appx. 876, 878 n. 1 (9th Cir. Nev. 2015).  Nonetheless, the legislative history to Nevada’s LLC law supports the proposition that members may be liable under the alter ego doctrine as noted in Bishop and Zucker on Nevada Corporations and Limited Liability Companies § 16.4[A].

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...