Veil Piercing

LLC members, member-managers and non-member managers can have personal liability for LLC obligations pursuant to traditional corporate veil piercing theories.

The “corporate veil” addresses a corporation’s limited liability and when it can or cannot be “pierced.” The veil of limited liability for an LLC remains in place as it does for a traditional corporation when LLC management adheres to proper governance practices and formalities, when the enterprise is formed and operated with sufficient capital or financing, and the LLC was not formed or structured (or operated) to hinder, delay or defraud creditors or others.

The Limited Liability Company Act does not expressly say that corporate veil piercing applies to LLCs, their managers or members. Section 10-10 of the Act does say “the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company,’ and that “failure of a limited liability company to observe the usual company formalities or requirements … is not a ground for imposing personal liability on the members or management for liabilities of the company.’ The reference in the Act to a tort is by no means an exculpation of LLC members or managers who commit an intentional tort.

The foregoing language in the Act should not be viewed as permission to ignore strict adherence to member limited liability in any way that would lead to injustice or inequity. Courts will pierce the veil in such situations and hold managers or members liable on an alter ego theory, i.e. ignoring formalities of running a separate business, rather than, in common parlance, running it like a personal piggy bank, such as co-mingling personal with business funds.

Managers of LLCs, whether members or non-member managers, should make sure the LLC is always properly capitalized and financed. All company records should be kept separate from the personal records of members, members as managers, and non-member managers.

The LLC lawyers at Lubin Austermuehle have many years of experience defending and prosecuting claims involving LLC members including breach of fiduciary duty and fraud claims and claims involving the freeze-out of members in the federal and state Chancery courts in Illinois in a wide variety of business dispute lawsuits. We are knowledgeable regarding the changes and complexities of LLC law. We are committed to fighting for our clients’ rights in LLC dispute cases at both the trial and appellate court levels. We have successfully defended or prosecuted LLC cases achieving large settlements for our clients or winning them control of their business. Conveniently located in Chicago and Elmhurst, Illinois, we have successfully litigated business separation, accounting and breach of fiduciary duty cases for clients all over the Chicago area. To schedule a consultation with one of our skilled attorneys, you can contact us online or give us a call at 630-333-0333.