Powered by Avvo.com
Q: LLC mananging manager is using the rental income for legal issues unrelated to the LLC he/she is managing. Besides breach: of fiduciary duties to the members, is this also considered comingling funds? Thank you in advance for your consideration.
Asked about 1 hour ago in Contracts
A: Commingling of funds occurs when the managing member mixes the business funds with his/her own personal funds. I understood you to say that the managing member is using business funds to pay for his personal legal fees. I assume this to mean that the managing member is writing checks or taking cash straight from the business to the pay his/her legal fees without depositing the business funds into his/her personal account first. If this is the case, the managing member is misappropriating the business funds. Personal use of the LLC’s funds could lead to an interpretation by a court or an administrative body that the LLC is merely an alter-ego of the individual members; thus, stripping all the protections afforded to the members by forming an LLC. Since you (and I presume any other members) are aware of the managing members actions, the members should take immediate action to protect the individual members and preserve the LLC. Steps should be taken immediately to remove the managing member from his/her position. The Operating Agreement should detail the steps necessary to change management of the LLC. I would need more information to provide a detailed response about the members rights against the managing member. But, it sounds as if a civil suit for fraud, misappropriation, self dealing and breach of fiduciary duties is a very viable option. The managing member may also have committed the crime of embezzlement.