How Are LLC Liabilities Prioritized? e.g. Are Bank Loans Paid Before Legal Settlements? Consider an LLC that owns a rental home worth $700,000 and has bank debt of $500,000. A renter slips, falls, sues, and wins a $300,000 settlement. Is the bank debt senior to the lawsuit, leaving the lawsuit $100,000 short? LLC members are wiped out, but with the limited liability of an LLC the story ends there? What if the $500,000 loan is owed to one of the LLC members? Does that change anything, assuming the member has a fully documented and separate loan agreement with the LLC?
Is the debt secured? Lenders can lend money secured or unsecured. If they lend it secured then what is the security? That is, what property secured the loan? For your example that could be a mortgage over the land or a charge over the assets of the LLC or both. In this particular example, it doesn’t make a difference but if the sale of the property only realised $400,000 and the security was a mortgage only then only $400,000 is secured and the rest is unsecured. Further, in some jurisdictions it is a requirement that security interests be “perfected” by complying with administrative provisions to register the security interest on some sort of public record. If this doesn’t happen, the debt is unsecured. Secured creditors rank ahead of unsecured creditors and in the order spelled out in the contracts or equally if the contracts are silent. Unsecured creditors rank in the order spelled out in 11 USC 507. The members of the LLC are not necessarily protected from the bankruptcy if it is possible to pierce the corporate veil.
There is no misrepresentation by the bank as you describe it, there is negligence by the account holder to comply with the terms of the account. The bank made no representation at all regarding a balance due. If you want the bank to be at fault, they the customer would have to demand a declaration as to the existence of a balance due (choose your words carefully), and the bank would have to have falsely asserted that there is no present or future obligation. This is not going to happen. All the bank can say is that they have no present record of charges. The customer's question might be something like &quot;Do you guarantee that there will be no charges to this account as of now&quot;. Of course, the bank cannot know whether there is a forthcoming paper charge that was made at some mountain resort. If case they did make such a promise, you could disavow the debt, using your reliance on their assertion as the basis for denying the debt. There is no law requiring banks to warn people of their contractual obligations when they close an account. I've never encountered a credit card contract that includes such a clause, but I suppose some bank might include a mandatory-warning clause, in which case they could be in breach of contract.
Yes, you can sell an interest in a debt; this is an alternative to paying a debt collection agency on recovery. The contract that you have with the debtor may have limitations of the transfer of rights and obligations under the contract that may prevent this. The value of the debt to the agency depends on the status of the debt and the credit worthiness of the debtor. If you have a judgement debt from a court, they don't come any more rock solid than that - the only limitation is the debtor's ability to pay. If the debtor has assets or a solid income stream an agency may pay 70-80% of the face value of the debt.
While I am a U.S. attorney, the U.K. and U.S. are essentially the same on these issue in practice: "reasonable wear and tear" is a classic issue of fact to be decided by the judge (unlike the U.S. there are never juries in U.K. landlord-tenant disputes) based upon the evidence presented to him and his or her good judgment if the case goes to court. There won't be a lot of case law that is specific enough to provide guidance in your particular case (if any) because cases like these aren't worth appealing and creating case law on and because the law intentionally vests judges with great discretion on these issues and only intervenes in appellate decisions when a judge is deeply out of line. The legal definition of "reasonable wear and tear" is basically vacuous and don't provide much meaningful guidance. I know you are joking, but no, do not set it on fire. You will find yourself incarcerated for arson, with a felony criminal record and a restitution judgment in the amount of the damages and a fine and court costs as well, and your credit record will be screwed and no one will rent to you ever again if they find out by doing a cursory background check. Your mum probably won't even invite you to Christmas dinner this year. If they charge your security deposit and you don't think you owe it, you would have to sue them for a return of the part of your security deposit you don't owe, knowing that you face a risk of paying their legal fees if you lose, but will get your fees if you hire a lawyer and win (caveat: there are more nuances to fee shifting in the U.K. courts than I spell out here which are rather technical). If they say you owe more than your security deposit and you don't pay, they can sue you for the balance, knowing that they face a risk of paying your legal fees if they lose, but will get their fees if they win. In practice, it doesn't really make economic sense for either party to hire an attorney because the amount of the fees is so high relative to the amount of money at stake. The security deposit is 2-4 hours of legal time, and the amount claimed is maybe 7-14 hours of legal time, neither of which is sufficient to address the respective issues economically in a fully litigated hearing. Short of going to court, you can provide them documentation and your video to show that you are right and to discourage them from docking your security deposit (in full, anyway) or suing you, ideally A.S.A.P. before they are too committed to taking legal action. You could also propose a compromise and see if you can get them to agree to it with neither party facing the risk of going to court.
By default, the tenant is liable for all rent until the end of the lease. E.g. if neither the tenant nor the landlord can find a suitable and credit-worthy replacement tenant (e.g. if the market has crashed), then the whole lease must still be accounted for by the original tenant, and the lost "rent" becomes "damages". However, there is also a concept of damage mitigation, and California Civil Code 1951.2 explicitly defines that it's the landlord's duty to mitigate damages. This means that the landlord cannot simply sit still and collect the rent on an empty apartment. Because of this, some smaller landlords in California outright have a policy that you can cleanly break the lease by paying for 2 months of rent as a penalty. (It appears that a good summary of various examples about landlord/tenant damage mitigation is available at UniformLaws.org.) However, when it comes down specifically to the SF Bay Area with the ever increasing rents and the lowest residential vacancy rates in the nation, and also especially with the corporate landlords that already have sufficient resources in place to readily advertise and promote an abandoned unit, it can probably be argued that, in practicality, requesting more than one month of rent (in damages) as a penalty for breaking the lease is simply unreasonable.
Most limited liability companies (LLCs) are small, closely held firms that are owned entirely or in substantial part by active employee-manager-owners with modest capital contributions. LLCs with large numbers of owners typically have a large share of non-employee investor ownership and are most common in oil and gas firms and in real estate firms that either develop, or buy and hold, real estate. Most large accounting and law firms and many other professional service firms are organized as LLCs or LLP (limited liability partnerships), which are owned by the senior employees whose contributions as employees dwarfs their contributions as investors. (Non-lawyers and non-physicians aren't allowed to have ownership interests in law firms and medical practices, respectively). These are the largest firms in the world with significant employee ownership. Start up tech firms organized as LLCs also often give equity stakes to employees even below the senior-managerial employee level. Rank and file employees are sometimes given an ownership interests in firms, but this is more commonly done through an employee stock ownership plan (ESOP) or certain other tax encouraged mechanisms for employee ownership in corporations (e.g., incentive stock options), or in the context of a firm organized as a cooperative (which is taxed essentially like a C-corporation but with an entity level deduction for cooperative dividends paid to members), than it is as an LLCs. One important reason for this is that pass-through taxation (which applies to LLCs not electing to be taxed as corporations) is not workable as a means of imparting ownership to large numbers of rank and file workers, because the compliance paperwork of sending out dozens or hundreds of K-1s to these workers is daunting, and because the prospect of a disconnect between allocated income and loss, and actual distributions (e.g. taxation on &quot;phantom income&quot; of the entity that is not distributed) is problematic.
I'm assuming it would NOT be a good idea to just accept the funding as a person (sole proprietorship). Correct. Would the time be right to form the LLC first, before starting the campaigns on the crowdfunding sites? Or would it be permissible for the entity to be formed IF and once the funding is available? For instance, if the campaign on Kickstarter raises 800 thousand dollars, can an LLC then be created, a bank account opened, and the funds deposited there? Or must the entity be created prior to the asking for startup funds? An entity should be (really must be) formed before funds are raised. This is not a hugely expensive thing to do. For a lawyer drafted one, you are talking on the order of $500-$2000, plus some state filing fees which are modest. I know it's kind of a chicken-and-egg situation, but there isn't a lot of funds available yet for hiring attorneys and drawing up papers before the money is raised. Or should this be something for just forming a very quick LLC and then worrying about the right entity after the funds come in? If you can't afford the money necessary to hire a lawyer to form an entity without crowdfunding, you aren't ready to open a manufacturing company. You really shouldn't consider trying to start a project of this magnitude unless you have at least several tens of thousands of dollars of personal funds on hand prior to the crowdfunding effort. You should also have a detailed business plan in place with fact checked budget lines and reality checked revenues estimates before stating your campaign. If you plan to have patents, you need to at least begin the process of applying to protect them legally, with pre-campaign funds too. Realistically, most people at your stage do a small round of friends and family and personal savings fundraising and often also find an angel investor or two, before going to the general public in a crowdfunding effort. If you can't convince those people that your project is worth investing in, you are probably not ready to run a manufacturing company which will require you to successfully make many similarly difficult pitches to a variety of people. What legal entity(s) would be best for startup funded by kickstarter or other investment? At the state law level a C-corporation and an S-corporation are the same. The distinction is made with a separate tax filing with the IRS in S-corporations. Crowd funding is a term that is often ambiguous and can be used in a multitude of contexts. If it is more than a gift (i.e. in exchange for stock or bonds) there are also securities regulations exceptions that the offering must be tailored to. If the funds are donations for a charitable project, a non-profit corporation would usually be the right choice and 501(c)(3) status needs to be obtained in advance. If funds are raised in exchange for equity interests or non-U.S. citizens/permanent residents own some of the interests, a C corporation would usually be the only permitted choice. If the funds are raised in exchange for interest paying loans/bonds, or the funds are non-tax deductible gifts rather than investments, then financing isn't a concern for choice of entity, and either an LLC or an S-corporation is usually preferred (or perhaps a limited liability limited partnership in lieu of an LLC which has a different control structure). If funds are raised for an operating business with assets that are leased or tend to depreciate in value and has less than 75 owners, and has owners who are also senior employees of the company, an S corporation will usually be the best choice. If funds are raised for a business that will hold assets expected to appreciate in value, or has a financing or control structure more complex than equal shares of common stock plus bonds, an LLC will usually be preferred. Assuming someone is going to start a business that is to design, build and manufacture a small electronic handheld device. A C-corporation or S-corporation rather than an LLC or LLLP is probably preferred for a venture like this one, with the tax classification dependent upon the means of financing and the nature of the owners. Usually, you would use an S-corporation if possible, and a C-corporation if not. A two entity structure, with an LLC owning the IP (if any, other than a trademark for the products), and then licensing it to an S-corporation operating company, would also often make sense in this scenario. I live in Texas, but I assume that the business entity would or could be formed in Nevada or Delaware or anywhere there are more favorable conditions. Not really. A Texas entity would be just fine in this context. A Delaware entity has higher registration fees and legal fees to prepare one, and the advantages it provides for big businesses will often be disadvantages in the kind of entity you are considering. The benefits of Nevada and Alaska trusts are much greater than the benefits of Nevada and Alaska corporations or LLCs. Also, the Texas entity may be more suited to addressing Texas community property issues.
In general, the law seeks to make all parties whole. There is no mechanism for profit-sharing between thieves and their victims. Victims of theft are entitled to receive their money back plus the applicable rate of interest (called the judgment rate). They are not entitled to profits or windfalls above and beyond the statutory judgment rate of interest. What if the act of stealing the money has destroyed the owner's business and has left him with a lot of debt and bankrupt? Criminal statutes provide for the return of stolen funds plus interest. Recovery of damages, as you describe, is provided by civil statutes and common law. So, to recover damages, the victim would need to sue the thief in civil court.