Can one company be held liable for the debts of another company if both are owned by the same person?

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

Can one company be held liable for the debts of another company if both are owned by the same person?

I am the principle owner of 2 separate LLCs.Both are supplied by the same distributor. Company A is healthy with no debt; Company B is newer and owes money to the distributor. Although we are not considered franchises, we are governed by the rules of the distributor not to be supplied by other suppliers. Company A has recently been “cut off” of supply which will put us out of business because of company B status. Is this legal? Aren’t these companies completely separate?

Asked on March 15, 2014 under Business Law, Wisconsin

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

The distributor cannot recover company B's debt from company A--that is, it cannot sue A for the money B owes it. However, a private business, like the distributor, is free to decide who to do business with or not, so long as it does not breach or violate a contract. So if the distributor feels that A is a risk--that it might default on its debt--because of its co-ownership with B, which has defaulted--it can refuse to do business with A.

However, if there is a contract with A, and A has been complying with all its terms, then the distributor can only cut A off if the terms of the contract allow it to do so; you need to review any contracts to see if, under the circumstances, the distributor could cut A off. If cutting A off breaches the contract then you can:

1) Sue the distributor who compensation ("damages") for breach of contract;

2) Sue the distributor seeking a court order (an "injunction") requiring it to comply with the contract and keep selling, etc. to you; and/or

3) The distributor's breach of its contract (cutting A off when it was not allowed to do so under the agreement) would free A from its own obligations and let A seek supplies, etc. from other vendors.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption