Zack, Gavin and Breana were college friends who decided to go into business together as a party equipment rental service. The th
ree budding entrepreneurs formed as equal owners a Limited Liability Company (LLC) named "Parties R Us." The written operating agreement gave only Zack the authority to manage the business, hire and fire employees, and purchase equipment. Zach contributed to the LLC his knowledge in the party business (his family had owned a similar company), and Gavin and Breana each contributed $100,000 capital. Over the next year, Zack ran the business, but he did not consult with Gavin and Breana, and no meetings were held. When Gavin and Breana asked what was going on with the company, Zack said he was too busy to talk about it. At the end of the first year, despite Zack's best efforts, the LLC's cash was depleted and its liabilities significantly exceeded its assets. To make matters worse, a defective parties r us tent had collapsed Into a wedding group, causing serious injuries. One of the wedding guests, Margaret, sued the LLC and received a $500,000 judgement against them. Because the LLC cannot pay Margaret, is it likely that Zack, Gavin, and Breana will be held personally liable for the judgment?a. yes, because the LLC was the owners' "alter ego."b. yes, because the LLC was undercapitalized.c. no, because the LLC was an entity independent from its owners.d. yes, because they didn't follow LLC formalities, such as holding meetings.
