ConstructionPro Week, Volume: 3 - Issue: 1 - 01/03/2014

Are Limited Liability Companies Effective Shields?

By Bruce Jervis

 

A primary purpose of a limited liability company, much like a corporation, is to shield company owners from personal liability for business losses. When the company enters into a contract, the company’s assets are at risk. But the company owners -- called “members” -- are not putting their personal assets at risk.

 

In order for an LLC to be effective, the members must be painstakingly careful to always make it clear they are acting on behalf of the LLC and not personally. This is true not only when signing a contract, but with all correspondence and communication. It is also crucial to avoid comingling of company and personal funds or other assets. If these practices are followed, an individual member of an LLC should not be at personal risk.

 

Nonetheless, claimants are constantly trying to “pierce the veil” and reach the personal assets of LLC members. A recent example involved an LLC with a single member. That individual personally performed construction work, some of which was allegedly defective. The property owner claimed these “negligent or wrongful acts” were an exception to the shield of limited liability. The matter went to the Louisiana Supreme Court.

 

What has been your experience with limited liability companies? Are individuals careful to always make it clear the capacity in which they are acting? Do they segregate company assets from personal assets? Do you believe an LLC should shield an individual from responsibility for work that individual personally performed? I welcome your comments.

 

COMMENTS

What was the courts decision?
Posted by: Wendy - Friday, January 03, 2014 9:58 AM


Something is missing . . . what "negligence" was alleged by the owner? Did the LLC also use/utilize other employees on the project? Usually, if an LLC member is on-site working, he is also serving as the Responsible Managing Owner/Employee of the LLC, i.e., he is supervising other employees, subcontractors, et al. If he/she is the sole worker on-site, then the negligence must be in the nature of "conscious disregard" for proper construction practices, and even then it must be almost hidden from inspection or impartial observer's sight to warrant "piercing the veil" if the LLC has been otherwise properly organized, managed and controlled. BUT, again, the case is/was in Louisiana.
Posted by: Jeff - Friday, January 03, 2014 10:11 AM


I've seen recent examples of owners and/orGCs who require personal acceptance of liability for LLCs members which obviously eliminates any veil of protection.
Posted by: Don Godi - Friday, January 03, 2014 11:33 AM


The Louisiana Supreme Court ruled that the sole member of the LLC could not be held personally liable for defective work he performed which was within the scope of the contract entered into by the LLC. The alleged negligence was the lack of due care in performing the work.
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