Can You Sue an LLC Owner Personally?

• May 13, 2021
• Business Law

Please note this blog post is written for employers, although we understand it may be of interest to employees as well. At this time, our firm represents business owners and employers. If you need assistance with a legal matter as an employee, please consult a firm that represents employees.

A question that many people have is, “Can you sue an LLC member or an LLC contractor personally?”

It’s true that one of the foundational characteristics of a limited liability company (LLC) is personal liability protection.

However, this does not mean that LLC members can never face personal liability for actions related to their business. 

“Just because you have a claim against a business that operates as an LLC does not mean that you might not also have a claim against the individual members. It’s important to consider every possible claim.”

Business Dispute Attorney Michael Long

If you are wondering whether you may be able to bring an LLC lawsuit against an individual owner, contact BrewerLong today.

Our team of experienced Florida business law attorneys handles a wide variety of business-related legal matters. We are confident that we can help you fight to pursue and protect your rights.

Florida LLCs: An Overview

There are a number of reasons why many choose to form their Florida businesses as LLCs. Some of the advantages of forming as an LLC include:

• Simplicity of formation, 
• Pass-through taxation, and
• Flexibility in ownership and management structures. 

One of the biggest advantages, however, is the personal liability protection that comes with an LLC. 

This means that, generally, individual owners of the LLC are shielded from personal liability for any debts that the business entity itself incurs.

Thus, the following assets of individual owners are typically separate from the LLC and are protected: 

• Homes, 
• Cars, 
• Personal bank accounts, and 
• Private investments.

But of course, there are certain exceptions to be aware of. 

When Suing an LLC Owner Personally May Be Appropriate

While LLC owners have limited personal liability, this liability protection is not absolute by any means.

In fact, there are a number of situations in which an LLC lawsuit against an individual owner or member may be appropriate.

Individual Owner Guarantees Debts of the LLC

In some cases, an LLC owner may guarantee debts of the business using their personal assets. Regardless of whether this is intentional or accidental, it may expose that individual owner to personal liability. 

Examples where an individual owner, rather than the LLC entity, may be personally liable include situations where: 

• A contract was signed by an owner in their individual capacity, rather than on behalf of the LLC; 
• An individual owner personally guarantees a loan granted to the LLC, but the LLC fails to pay back the loan; or 
• You discover an LLC you have conducted business with has been using a bank account in the name of an individual owner.

In any of these situations, you may be able to sue an LLC owner personally. 

This can be beneficial for a number of reasons. For example, in some situations, you may find yourself suing an LLC with no assets.

However, if you find that any individual owners have personally guaranteed the debts of the LLC, you may still have an avenue to recover what is owed. 

Piercing the Corporate Veil

Even in cases where an individual owner did not personally guarantee the debts of the LLC, you may still be able to sue an LLC owner personally. One such example is if you are able to “pierce the corporate veil.”

When piercing the corporate veil, courts may ignore the limited liability status of LLC members and hold them personally liable. However, this can only be done in certain situations. 

Generally, courts desire to uphold the protections provided by the LLC business structure. Thus, they will typically pierce the corporate veil and hold individual owners personally liable only where there is wrongful or fraudulent conduct or where there is no true separation between the LLC and its owners. 

Some situations where you can sue a business owner personally by piercing the corporate veil may include:

• Fraudulent or illegal activities. Courts may pierce the veil if the LLC is used to commit fraud or engage in illegal activities, exposing owners to personal liability for such actions.
• Undercapitalization. When the LLC lacks adequate funds to cover its foreseeable liabilities, owners may be held personally liable to ensure creditors are not left uncompensated.
• Failure to maintain separate finances. If owners blur the line between personal and business finances, courts may disregard the LLC’s separate legal status and hold owners personally liable for debts and obligations.
• Failure to follow corporate formalities. Courts may pierce the veil if owners fail to adhere to formalities like conducting regular meetings, keeping minutes, and maintaining proper records, indicating a lack of respect for the LLC’s corporate structure.
• Commingling of funds. Mixing personal and business finances can lead to piercing the veil, which suggests that the LLC is not being treated as a separate entity.
• Using the LLC as an alter ego. When owners use the LLC to conduct personal business or treat its assets as their own, courts may pierce the veil to hold them personally liable.
• Failing to pay taxes. Not fulfilling tax obligations can result in piercing the veil, as it demonstrates a disregard for the LLC’s legal responsibilities and may lead to personal liability for taxes owed.

Factors that some courts may consider in determining whether to pierce the corporate veil include whether the LLC: 

• Engaged in fraudulent behavior and to what extent it did;
• Failed to comply with corporate formalities, such as filing requisite entity formation documents and holding annual meetings; or
• Commingled assets of the LLC with personal assets of individual owners.

However, it is important to note that the laws in Florida regarding piercing the corporate veil are more restrictive than in other states.

In fact, Florida Statutes section 605.0304(2) expressly states, “The failure of a limited liability company to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a member or manager of the company for a debt, obligation, or other liability of the company.”

Thus, before suing an LLC and attempting to pierce the corporate veil, contact an attorney to discuss the facts of your case. 

Breach of Duties as an LLC Member

Florida Statutes section 605.04093 provides that LLC managers or members may also be personally liable where they breach or fail to perform their duties.

However, personal liability may not be imposed unless the manager’s or member’s breach of, or failure to perform, their duties constitutes one of the following: 

• A violation of criminal law;
• A transaction that conferred an improper benefit upon the manager or member;
• An improper distribution;
• Willful misconduct or conscious disregard of the best interest of the LLC; or 
• Recklessness, or an act or omission committed in bad faith or with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. 

If you think an LLC owner may have breached their duties or failed to act, you may be able to sue them personally. Contact us today to speak with an attorney.

Suing An LLC Owner Personally

So, how do you go about suing an LLC personally, and how can business owners protect themselves from being sued? 

Can You Sue the Owner of an LLC?

As we discussed, you can sue the owner of an LLC. But you have to overcome the initial hurdle to show that the situation merits being able to sue them personally. For example, you may need to show they breached their duties as an LLC member, did something to warrant piercing the corporate veil, or are personally liable under the circumstances. 

A business attorney can help you by reviewing your case and advising you of your legal rights under the circumstances. Our team regularly and successfully brings claims on behalf of individuals and businesses. 

How to Protect Yourself from Being Sued Personally If You Have an LLC

LLC owners can take steps to protect themselves and their investments. After all, personal liability protection is a big advantage of forming a business and choosing the LLC structure. 

The most important step any business owner can take is to talk to a business attorney and have them review your LLC documents regularly. Seemingly well-written agreements may appear to protect your rights but, in actuality, may be insufficient to protect your legal rights. For example, if you signed a document purportedly on behalf of the LLC and didn’t have the authority to do so, you may be on the hook for the terms. 

A business attorney reviews your legal documents and drafts appropriate documents for the transactions. When misunderstandings arise between an LLC owner and another party, a business attorney can help mitigate further complications.

Proactive Measures to Prevent Lawsuits

While there are some situations where suing an LLC is possible, there are also steps members can take to help keep personal liability to a minimum. To safeguard their personal assets, LLC members should consider the following:

• Maintain adequate capital. Ensure your LLC is adequately funded to cover foreseeable liabilities and avoid commingling personal and business funds, as this can jeopardize the separation between your personal assets and those of the LLC.
• Follow corporate formalities. Be sure to hold regular meetings, keep detailed minutes, and maintain proper records, including financial statements and resolutions, to demonstrate that the LLC is a separate legal entity.
• Keep personal and business finances separate. Open a separate bank account for the LLC and its funds for business purposes only. Avoid using personal funds for business expenses.
• Avoid fraudulent or illegal activities. Conduct business ethically and in compliance with all applicable laws and regulations. Do not use the LLC to shield fraudulent or illegal activities, which can lead to personal liability.
• Use the LLC for legitimate business purposes. Avoid using the LLC as an alter ego for personal transactions, and ensure that all business activities conducted through the LLC are legitimate and in the company’s best interests.
• Pay taxes promptly and accurately. Fulfill all LLC tax obligations, including filing tax returns and paying taxes when due. Ensure accurate records of all tax filings and payments to demonstrate compliance.
• Purchase sufficient insurance. Consider obtaining liability insurance to protect against lawsuits arising from business activities depending on the business. Consult an insurance agent to determine the appropriate coverage for your LLC’s needs.

Paying close attention to these can help prevent the LLC’s members from losing their personal assets should they face legal issues.

Can You Sue A Business Owner Personally?

Yes, in certain situations, a plaintiff can sue the owners of a business personally for the actions of the company. This legal action is referred to as “piercing the corporate veil.” It is a legal concept that allows courts to hold an individual or individuals personally liable for the company’s actions or debts under specific circumstances.

This typically happens when the court finds that the company’s actions were fraudulent or when the separation between the personal affairs of the owners and the company’s affairs is not clear. However, this is a complex legal area, and specific conditions must be met for a court to permit such an action.

Suing An LLC Owner With No Assets

⁤When using an LLC with minimal or no assets, a creditor might focus on demonstrating the intermingling of the LLC member’s assets with the LLC’s assets. ⁤⁤If an LLC member uses the business bank accounts for personal transactions, this could expose them to personal liability for the LLC’s debts. ⁤⁤

This situation arises when the legal separation between the LLC and the individual member’s finances is not maintained, potentially allowing creditors to pursue the individual’s assets to satisfy LLC debts. ⁤

How Can an Attorney Help?

When considering legal action against an LLC owner, a lawyer, like a member of the business law team at BrewerLong, can be an invaluable resource. We can assess the merits of your case, determine the appropriate legal strategy, and guide you through the complexities of the legal process.

The right lawyer helps you understand your rights and options, including whether you can sue an LLC owner personally, which is often a complex issue with serious consequences. We can also represent you in negotiations and court proceedings, protecting your interests and advocating for the best possible outcome.

Ultimately, an experienced lawyer can provide the expertise and support you need to navigate the legal system effectively and successfully resolve your case. ⁤

Thinking About Suing an LLC Owner Personally? 

The business law attorneys at BrewerLong are standing by and ready to help. 

Due to the limited liability protection afforded to LLC owners, determining whether you may be able to sue them personally can be difficult. Fortunately, our team has years of experience handling just these types of claims. 

For more information on whether you have a potential claim, contact BrewerLong today for a consultation. Let’s discuss your case and see what we can do for you.

This blog post is provided on an “as is” and “as available” basis as of the date of publication. We disclaim any duty to update or correct any information contained in this blog post, including errors, even if we are notified about them. To the fullest extent permitted by law, we disclaim all representations or warranties of any kind, express or implied, with respect to the information contained in this blog post, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title, non-infringement, accuracy, completeness, and timeliness. We will not be liable for damages of any kind arising from or in connection with your use of or reliance on this blog post, including, but not limited to, direct, indirect, incidental, consequential, and punitive damages. You agree to use this blog post at your own risk. Regarding your particular circumstances, we recommend that you consult your own legal counsel–hopefully BrewerLong.

Michael Long

Michael Long, a distinguished Business and Litigation Attorney at BrewerLong, brings a unique blend of tenacity and insight to his practice, honed from his time as a decorated combat veteran in the Marines. Specializing in complex litigation, Michael adeptly navigates the intricacies of business break-ups, professional liability, and a wide array of disputes encompassing tax, trust, real estate, contract, intellectual property, and loan issues. His expertise extends to business counseling, where he skillfully handles commercial contracts, company creation, intellectual property challenges, and more. Michael’s approach is holistic; he leverages his transactional and litigation experience to foresee and tactically address both immediate and long-term client needs, ensuring practical, cost-effective solutions that maximize benefits while minimizing risks. His commitment to excellence is evident in his affiliations with prestigious organizations like the American Legion, Central Florida Christian Chamber of Commerce, and the Orange County Bar Association, among others. He’s a committed advocate, driven by a passion to deliver results and justice for his clients.

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