Identify shareholder liability in the California of the United States

Dispute between a company in Qingdao and a company in the United States

1．Basic case details

The plaintiff, a company in Qingdao, signed a commission contract with the defendant, a company in the United States. The defendant, a company in the United States, was established in California, and the defendant, a person, was a shareholder of the company. The plaintiff paid the relevant funds involved in the commission contract to the defendant, a person. Now, based on this person being a shareholder of the defendant, the plaintiff demands that the two defendants bear joint and several liability for returning the funds under the commission contract.

2．Laws to be investigated

According to the laws of California, USA, where the defendant’s company is registered, are shareholders responsible for the company’s debts; If you need to take responsibility, what kind of responsibility do you need to take.

3．Identified content

According to the laws of the California region and existing cases, shareholders and members of a limited liability company generally do not assume personal responsibility for the company’s own debts. The California Company Law also provides for “alter ego liability”. According to the California Company Law, “if a corporate entity or limited liability company is used by one or more individuals to engage in fraudulent activities, evade the law, or engage in other illegal or unfair behavior,” the court may disregard the independent personality of the company. However, California common law imposes two restrictive conditions on the unveiling of a company: 1. Whether there is a sufficient unity of interest and ownership between the company and its members, to the extent that there are no longer independent personalities between the company and the member. When determining this condition, the following factors should be considered: (1) whether the individual owns all the shares of the company; (2) Do the two have the same office or business premises; (3) Whether the property between the individual and the company is mixed up; (4) The individual claims to be personally responsible for the company’s debts; (5) Both have the same directors and staff; (6) Failure to retain company memorandums or appropriate records; (7) Neglecting the relevant procedures of the company; (8) Lack of company assets and sufficient capital; (9) Using the company solely as a shell, instrument, or conduit for personal business. Continuing to uphold the independent legal status of the company may encourage fraud or lead to unfair outcomes.

4． Judgment result

After investigating the relevant laws in the California region of the United States, the parties reached a settlement through legal interpretation and reasoning. The defendant paid a portion of the money and the case was concluded.

5．Typical significance

Whether shareholders of overseas companies should bear responsibility for the company’s debts and under what circumstances should they bear responsibility are the difficulties in judging foreign-related cases. According to the Law of the People’s Republic of China on the Application of Law in Foreign Related Civil Relations, the civil rights capacity, civil conduct capacity, organizational structure, shareholder rights and obligations of legal persons and their branches shall be governed by the law of the place of registration. Therefore, the determination of the above issues must be based on the corresponding foreign laws. This case entrusted the Foreign Law Investigation Center of East China University of Political Science and Law to investigate the company law in the California region of the United States, informing the plaintiff of the corresponding litigation risks, reducing the plaintiff’s psychological expectations for litigation, and ultimately facilitating mediation between both parties to properly resolve their disputes.