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Piercing the LLC Veil in California

Updated: Nov 11, 2023

In a previous post I explained piercing the corporate veil in general terms, and in another I explained the rules specific to California. This post covers veil piercing as applied to California LLCs.

What is the test?

It's pretty much the same test.

What does the law say?

"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...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..." Cal. Corp. Code section 17703.04(b) (emphasis added).

The only major difference is that the code does not require annual meetings if your articles or operating agreement do not require them. Cal. Corp. Code section 17703.04(b). So failure to hold annual meetings, if your articles or operating agreement do not require them, will not be counted among the factors for veil piercing.

Why does it matter?

LLCs are the most popular form of limited liability entity, not just in California and Texas, but in every state in the United States. If you operate an LLC, you need to know how to avoid veil piercing so that you can avoid personal liability for LLC debts. And if you're the creditor of an LLC, you need to know how to pierce the veil.

Moreover, in California, we've already seen how the CSLB effectively punishes contractors for forming LLCs (and that it stems from a perceived lack of veil piercing case law). Because we know that the veil piercing test is largely the same for LLCs, we know that the legislature's (and the CSLB's) concerns are misplaced.

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