Is Personal Liability Limited in an LLC?

Limited liability companies (LLCs) are very popular because they are easy to set up and they provide limited personal liability. The “limit” of the personal liability is typically the investment amount, often referred to as the capital contribution. If the company is sued and found to be liable, then the company will be responsible for the damages, but the members or managers will not be personally liable. That is the essence of the limited liability protection provided by the LLC.

There are, however, circumstances where the protection will not be limited and the members or manager of the LLC may have personal liability to the person or entity that has been harmed or damaged. As might be expected, liability is not “limited” when the behavior is bad or inappropriate. What type of bad behavior you ask . . .

As examples, but not an exclusive list, if a manager or member of the LLC fails to perform his or her duties as a manager or as a member of the company and this failure constitutes one of the following, then personal liability may not be limited:

  •  was a criminal act; or
  • resulted in an improper personal benefit (directly or indirectly); or
  • resulted in an improper financial distribution that deprives the company of being able to pay its debts or creates insolvency; or
  • was commited recklessly or in bad faith or with malicious purpose or exhibiting wanton and willful disregard of human rights, safety, or property; or
  • was a breach of fiduciary duties of loyalty and care to the company or to the other members of the company; or
  • constitutes conscious disregard of the best interest of the limited liability company, or willful misconduct.

Also, there is no limit to personal liability of a manager or member for taxes owed to the United States and for Florida sales or use taxes.

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