Did You Know? What Is Reverse Piercing?
Strategies to Protect Your Business Assets
The earliest recorded New Year’s celebration dates back over 4,000 years to ancient Babylon. The Babylonians celebrated the New Year during the first new moon following the vernal equinox. Here are a few more fun facts surrounding the new year! A JANUARY CELEBRATION While we now associate Jan. 1 with the New Year, it wasn’t always the case. The Roman calendar initially designated March as the beginning of the year. Jan. 1 became the start of the year when Julius Caesar introduced the Julian calendar. The iconic New Year’s Eve ball drop in Times Square, New York City, started in 1907. The first ball, made of iron and wood, weighed 700 pounds and was adorned with 100 light bulbs. THE FIRST NEW YEAR’S BALL DROP
Business owners have long favored limited liability corporations (LLCs) because protecting their personal assets from the company’s liabilities is a crucial aspect of risk management. LLCs generally shield assets from both directions of liabilities. However, this protection can be challenged in certain situations. We’ve previously mentioned how an owner’s assets can be exposed when their business is sued (piercing the corporate veil), but less common is when the courts pursue an LLC’s assets during a personal lawsuit against one of its owners. WHEN CAN THE COURT REVERSE PIERCE? Reverse piercing can occur when a business owner faces a personal lawsuit but must expose certain assets held within their California LLC to satisfy the judgment. This tactic is generally invoked when the owner of the LLC does not have other assets sufficient to satisfy a judgment, or those assets are more difficult to reach. Even worse, it does not necessarily matter if the owner mismanages the business or not. In these cases, someone with a judgment against an owner may pursue the LLC’s assets to satisfy personal obligations. The court will not pursue reverse piercing that unjustly damages the finances, business, and reputation of innocent third parties connected to the LLC. If the LLC has multiple owners, and these co-owners are not linked to the litigation in question, it becomes less likely that severe penalties will be imposed on the LLC due to the personal liability of one owner. The court’s aim is to provide a fair and just resolution without causing collateral damage. CAN INNOCENT THIRD PARTIES FALL VICTIM TO REVERSE PIERCING? THE LOCATION OF YOUR LLC MATTERS. In the realm of reverse piercing in California, jurisdiction plays an important role. California courts are only authorized to pursue California LLCs. If your LLC was established in another state, reverse piercing does not apply. In such cases, California courts are generally unable to pursue a reverse piercing to satisfy a judgment entered under their jurisdiction. IS YOUR CALIFORNIA LLC AT RISK? Whether or not your California LLC is at risk of reverse piercing depends on various factors, including the extent to which you, as the owner, are involved in the day-to-day operations and financial matters of the LLC. To mitigate this risk and ensure maximum asset protection, work with legal experts who know the law. At Dahl Law Group, we help businesses and business owners safeguard their assets and navigate complex legal scenarios just like this. Contact Dahl Law Group today to set up or review your business structure. We will work diligently to help you mitigate the risks of piercing or reverse piercing.
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