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 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:
- 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.
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.
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.
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.
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