LLC personal liability for company’s debts
Category: Maryland Business Law
January 25, 2018
Maryland offers a significant amount of legal protection for the members of LLCs. These protections stem from Maryland law, which provides that “no member shall be personally liable for the obligations of the limited liability company, whether arising in contract, tort or otherwise, solely by reason of being a member of the limited liability company.”
Personal liability on a member of an LLC
Over time, the courts have interpreted this statute to shield individual members from personal liability arising from the actions of the LLC. In fact, the courts have identified only two situations where a member could be personally liable for the actions of the LLC: (1) if the imposition of personal liability is necessary to prevent a fraud, or (2) if the imposition of personal liability is necessary to enforce a paramount equity.
As of today, Maryland courts have only ever imposed personal liability on a member of an LLC where the LLC was used to perpetrate a fraud. Although the courts have yet to impose liability on the basis of enforcing a paramount equity, they do consider certain factors such as the LLC’s solvency, its solvency, or how strictly the LLC followed formal company procedures.
Most notably, perhaps, the Maryland Court of Special Appeals has directly addressed the issue of member personal liability to redress a breach of contract, stating “this Court and the Court of Appeals have made clear that the corporate veil will not be pierced to redress the breach of a contractual obligation in the absence of fraud when the party seeking to pierce the corporate shield has dealt with the corporation in the course of its business on corporate basis.” LLC members involved in a contract dispute should, however, be largely cognizant of the other means by which personal liability may be imposed and seek the advice of an experienced attorney.
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