Can a Member of a LLC Be Sued Individually and as a Member of a LLC?
One of the hardest truths to learn in modern society is that anybody can be sued for anything at any time. That being said, it does not mean that the lawsuit will be deemed justified or will result in a negative judgment against the defendant. Under most circumstances, members of a limited liability company, or LLC, are protected against being personally named in a lawsuit against the business entity, but that is not always the case.
Dating back to ancient Roman times, the corporate veil is the legal concept that offers protection from liability for LLC members. This theory holds that the business operates as a separate entity and can function independently and indefinitely apart from its owners and members. The theory further holds that the company itself maintains sole responsibility for its assets and liabilities, including any debt it may occur.
Once a lawsuit has been filed in court, it is difficult, if not impossible, to add anyone who was not included initially. Therefore, most attorneys employ a shotgun approach to litigation in which they will include everyone remotely related to the tort. This usually will include the company entity itself, all the members of that organization, managers, supervisors, employees who may have been present at specific times, and officers of the business. More often than not, the majority of these individuals will file independent motions to be removed from the suit. The parties left will be responsible for the defense of the motion.
Under certain instances, a member can be held liable for his actions regarding an LLC. One such example would occur if the plaintiff could prove that individual assets were commingled with the company assets. In that way, there is no longer a clear division between the two individual identities, and they are no longer considered independent of each other. Another issue that often arises in small businesses is through a personal guarantee for the purchase of an asset. By signing such a document, the LLC member assumes full responsibility for the debt separately and apart from the company. These situations should be avoided by members if at all possible.
No legal statute exists in federal or state law that will protect LLC members in the event of fraud. Any lawsuit that attests to any type of fraudulent activity, including fiduciary misconduct or contractual malfeasance, always will result in direct action against the members of the LLC. In some cases, members also may be held responsible in criminal court for violations if those violations resulted in the fiscal harm of others.