As previously discussed, there are many benefits to operating a business as an LLC, one of which being limited liability for the individual members of the company. However, under certain circumstances, members can be held individually liable for their actions or inactions related to an LLC.
LLC Members’ Individual Liability
Louisiana Revised Statute 12:1320 provides the following:
- The liability of members, managers, employees, or agents, as such, of a limited liability company organized and existing under this Chapter shall at all times be determined solely and exclusively by the provisions of this Chapter.
- Except as otherwise specifically set forth in this Chapter, no member, manager, employee, or agent of a limited liability company is liable in such capacity for a debt, obligation, or liability of the limited liability company.
- A member, manager, employee, or agent of a limited liability company is not a proper party to a proceeding by or against a limited liability company, except when the object is to enforce such a person’s rights against or liability to the limited liability company.
- Nothing in this Chapter shall be construed as being in derogation of any rights which any person may by law have against a member, manager, employee, or agent of a limited liability company because of any fraud practiced upon him, because of any breach of professional duty or other negligent or wrongful act by such person, or in derogation of any right which the limited liability company may have against any such person because of any fraud practiced upon it by him.
Therefore, while ordinary immune to personal liability, members and managers, as well as employees and agents can be held personally liable for acts constituting fraud, negligence, or breaches of professional duties. In an effort to make this concept more clear, the Louisiana Supreme Court established a four-factor test to determine whether a person normally protected by the LLC should be held personally liable.
Ogea’s Four-Factor Test
In 2013, the Louisiana Supreme Court proposed a four-factor test to determine whether an individual acting “on behalf of” a limited liability company should be held personally liable.
- Whether the member’s conduct could be fairly characterized as a traditionally recognized tort
- Whether a member’s conduct could be fairly characterized as a crime, for which a natural person, not a juridical person, could be held culpable
- Whether the conduct at issue was required by, or was in furtherance of, a contract between the claimant and the limited liability company
- Whether the conduct at issue was done outside the member’s capacity as a member
The Court held that while each case should be evaluated on its own merits, that whether a crime or tort was committed could be dispositive and lead to personal liability. It is important for members of LLC’s to know that they can be held personally liable for their actions and that starting an LLC is not an absolute shield to liability.
Should you have any questions or you would like to discuss this issue in further detail, please do not hesitate to contact us to schedule a free consultation.