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KJLLAW
KJLLAW, Attorney
Category: Business Law
Satisfied Customers: 1359
Experience:  Attorney at Law Office of KJLLAW
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I am a small business owner in NYC and have been having

Customer Question

Hello,I am a small business owner in NYC and have been having trouble lately trying to get payment from my client. The restaurant that I deliver my goods to has technically dissolved (corporation name doesn't exist since they sold the restaurant to another owner). However, I have received 2 payments from his personal checking account after the fact it has been dissolved.My question is can I take him to small claims (I do have his home address to serve him notice) and have his personal name there in the defendant's position and have him personally responsible for the corporation that doesn't exist currently?Id prefer a NY law expert to answer this please.E
Submitted: 1 month ago.
Category: Business Law
Expert:  KJLLAW replied 1 month ago.

Good morning. I am a NY law expert and will assist you. Was there a written contract for the goods delivered, or just a shipping bill?

Customer: replied 1 month ago.
Hi. Only paper record are invoices with their signature confirming goods received. Initially, before he sold off the business, we were receiving payments from them on time.
Expert:  KJLLAW replied 1 month ago.

ok

Expert:  KJLLAW replied 1 month ago.

Hello and welcome to Just Answer. No attorney-client relationship or privilege is formed by speaking to an expert on this site, the answers are for general information. By continuing, you confirm that you understand and agree to these terms.

As to the claim against the owner or shareholder for the corporate debt, which they signed for and paid out of a personal check, collection by you, would be based on the legal theory of 'alter ego', and it differs from the shareholder's personal liability as an individual.

Under the alter ego theory, a shareholder can be liable for a corporation's debt upon a showing of certain circumstances, which include the 'personal' use of corporate assets, the mixing (or 'commingling') of personal and corporate assets, or the undercapitalization of the corporation and using their own money to pay the corporate debts. This is how you would be able to sue the owner in small claims court, and in a small business setting, this is often successful because individuals in small businesses fail to maintain the separation between themselves as an individual and their corporation, leading to potential liability as an “alter ego”.

If they did indeed pay you initially with personal checks then they would be comingling the debts and paying with personal assets, thereby allowing them to be named personally for the debts.

I hope this helps.

It was a pleasure assisting you today, and I would appreciate if you would rate my service, so I will receive credit and payment for my work. After you rate the question you can ask follow up questions, and you will not be charged any additional money for the follow-up questions.

Customer: replied 1 month ago.
Hi,Thanks for your response. While their business was in operation under their legal name they were paying via business account. After they closed the corporation we received 2 checks via the owner's personal checking account. Does this alter ego theory still stand in court? And lastly while filing in court I suppose the defendant would be the individual and not the closed corporation?E
Expert:  KJLLAW replied 1 month ago.
It would be an argument in your case that the individual took over the payments of the Corporation debt and assumed liability if the debt by their action of paying a debt personally. Yes, you would have to sue the individual and not the closed corporation because even if you succeeded against the corp., if they are closed they are judgment proof. This is why we try and go after an alter ego in this type of payment case.I hope this clarifies. Please don't forget to rate the question with stars so that I will receive payment.
Expert:  KJLLAW replied 1 month ago.
If you have any other questions please just ask. If not please rate the question with stars.