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Minority-owner S-Corp sued for breach of lease (no longer afford rent). Suing Corp & me. How to protect me even if Co. doomed?

Asked over 2 years ago - Los Angeles, CA

Co. opened 2nd warehouse over year ago to serve new biz. Economic tailspin soon after caused new biz to back out, private financing to dry up, leaving co. to pay rent, expenses and needed bldg improvements (HVAC for cold storage) on cash flow. Unable to do it, unable to get new financing, barely keeping original whse/office in business these days. Without HVAC, no customers. 2nd whse bldg owner suing for breach of lease agreement after months of unpaid rent and no activity in bldg. equating to abandonment. Suing both corp and it's two owners. Majority owner (65%) is broke, IRS garnering wages, has sub 500 credit, 2 recent judgments against him for breaking (non-company-related) contracts, no home or assets. I have savings, investments, home - how do I address individual suit? Protect ME?

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Attorney answers (3)

Galen Gentry

Reputation Level 13

Answered over 2 years ago. Contracts / Agreements Lawyer in Los Angeles, CA.

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I agree with what the Colorado attorney, Mr. Murillo, stated. You probably know this and you are looking for confirmation. Since you have assets and almost certainly signed a personal guarantee you are not in a great position. Call different lawyers in Los Angeles that work with small businesses. You may wish to consider finding a lawyer who will work with you for a flat fee. Otherwise, the costs of defense may become very high, very quickly.

Information on alternative fee structuring

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Robert John Murillo

Reputation Level 15

Answered over 2 years ago. Contracts / Agreements Lawyer in Boulder, CO.

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You need to talk to an attorney to review the lease and related documents. Commercial leases almost always have personal guarantees. If you signed this, the limited liability shield of the corporation is generally ineffective. You must talk to an attorney to consider options because there is no way to know without a close review of all facts and relevant documents.

DISCLAIMER—This answer is for informational purposes only and discusses general legal principles, trends, and considerations and is not intended as specific legal advice regarding your question. This answer does not establish an attorney client relationship.

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Pamela Koslyn

Reputation Level 20

Answered over 2 years ago. Business Attorney in Los Angeles, CA.

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I agree with my colleagues, this is not a simple situation and no one can tell you what your commercial lease and S-corp documents provide without reviewing them.

If you and your majority shareholder personally guaranteed the lease and your majority shareholder is broke, then you may be liable and indemnity from your majority shareholder may be worthless. There may be some opportunity to cross-complain against the landlord for not providing HVAC, but again, no one can advise you without reviewing your lease, etc.

Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship

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