Hi, I have a small business (an LLC) that resells gift cards that I buy online. However, the prices of the gift cards that I buy online are somewhere between 40%-60% off the retail value of the card and I suspect these cards were acquired illegitimately or through some type of fraudulent activity, but I have done some research and couldn’t find any evidence proving that this is so.

Also, the gift cards are available at these same low prices at most online auction sites like eBay, Sell.com and others.

My question is, if these gift cards do turn out to have some fraudulent or maybe even criminal activity behind them, what type of legal action can be brought against my company for selling the gift cards to my customers and what steps can I take to further protect myself if that is the case?

– Nick, New Jersey


The way an LLC (or any corporate entity) works is that your LLC is a legally separate entity from yourself.

Your LLC and you are as different–legally–as you and your neighbor.

If your neighbor is sued for fraud, does that affect you? Of course not.

Same with you and your company. Now, if it can be shown that you personally knew of the fraud and participated in it, then you could be held personally liable. This is more common in closely held companies (for example, a single member LLC with no employees) than with a huge multi-national corporation.

As far as your company being held liable, that is going to depend on the facts and circumstances of the particular case, and you will need to consult an attorney on those issues.

Generally, you are not liable for your corporate debts, unless:

1. You contractually agreed to be liable (e.g. you personally guarantee a bank loan to your company;

2. Your corporate veil is pierced;

3. You are sued personally for your personal (as opposed to corporate) actions (e.g. you own a bar, and decide to punch out a patron–you could be sued personally for your assault).

If I had to guess at your situation, your corporation could be liable for fraudulent gift cards.

If you are charged criminally with anything, see a lawyer immediately…don’t try to “talk your way” out of it.

You’ll end up talking yourself into jail.

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