How Do I Hold You Liable? Let Me Count The Ways . . .
When the owner(s) incorporate an existing business, the corporation is not necessarily a tabula rasa with respect to the creditors of the business being incorporated. Indeed, a creditor of the business may try to hold the corporation or its assets liable under several possible theories, including:
- Express assumption;
- Implied assumption;
- Estoppel (see, e.g., Reid v. F.W. Kreling's Sons' Co., 125 Cal. 117, 57 P. 773 (1899));
- Failure to comply with the Bulk Sales Law (discussed in this post);
- Uniform Voidable Transactions Act (Cal. Civ. Code §§ 3439-3439.14 (fka Uniform Fraudulent Transfer Act));
- De facto merger;
- "Mere continuation" (See Ray v. Alad Corp., 19 Cal. 3d 22, 136 Cal. Rptr. 574, 560 P. 2d 3 (1977);
- Alter Ego;
- Conversion statutes (e.g., Cal. Corp. Code §§ 15911.09(b)(2) & 17710.09(b)(2)).
A creditor's success under any of these theories will, of course, depend upon a variety of factors, including the nature of the creditor's claim, the mechanism by which the corporation is created, and/or even the intent of the transferor. Thus, while there may be a multiplicity of theories, success is by no means assured.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
