Posts Tagged ‘small claims court’

posted by | on , , , , | Comments Off on I need to file a law suit in small claims court on behalf of my small corporation. The amount of my claim doesn’t justify me hiring an attorney. The court tells me that because my claim exceeds a certain amount, I must have an attorney. Is this right?

The short answer is “yes, but.”

While non-attorneys regularly file and prosecute their own claims in small claims court, the law prohibits a non-attorney from bringing suit on behalf of a corporation, even when such person is the sole shareholder of the corporate claimant. This prohibition applies to claims over a threshold amount of alleged damages. The purpose behind this rule is to restrict non-lawyers from “representing” another person or entity— in this case, a corporate claimant— in court.

So is the non-attorney stuck with hiring an attorney to bring the claim, even if it is not cost-justified? Maybe not.

If a non-attorney wishes to bring the action but avoid incurring attorneys’ fees, the corporate claimant can assign the claim to the individual to pursue in his individual capacity. Much like cash, land, or other property, the claim is an asset of the corporation, which can be distributed from the corporation to its shareholders. Once the corporation has assigned the claim, the non-attorney litigant is free to pursue the claim in his individual capacity. He will merely need to show the small claims court that he “owns” the claim by virtue of the assignment by the corporation. The costs of pursuing the claim would be his own, and any recovery would be an asset of the individual and not the corporation.

Because the assignment is effectively a dividend from the corporation, any litigant considering a corporate assignment of a claim to its shareholder or shareholders should bear in mind that there may be tax consequences to consider. Prior to taking this action, it may be appropriate to consult his tax advisor.