Law in the Marketplace: Single-member LLCs — the liability shield - Concord Monitor
Americans love to sue each other, and most New Hampshire individuals who own and conduct single-owner businesses are potential targets of claims by their customers, their suppliers, their own employees and independent contractors, and other third parties. If you own a New Hampshire business, the simplest way to protect yourself from such a claim is by conducting your business as a single-member LLC, since the New Hampshire LLC Act provides you with protection in the form of a statutory liability shield.
However, there are situations in which an LLC liability shield will protect you from these claims and other situations in which it will not. Every New Hampshire individual who owns a single- member LLC should have at least a basic understanding of both types of situations. Since many hundreds and potentially some thousands of individuals who read this column own or may eventually own New Hampshire single-member LLCs, in this column and in one or more subsequent columns I will provide a plain-English explanation of these situations.
The starting point for today’s column is necessarily the liability shield provisions of the New Hampshire LLC Act, which are set forth in Section 23 of that act. This section provides, in essence, that the liabilities of an LLC will be solely those of the LLC itself, and it provides that no members or managers of the LLC shall be liable for these debts simply because they are members or managers. Thus, for example, if an employee of your LLC injures a third party while working for your LLC, you yourself won’t normally be liable for that injury, thanks to your New Hampshire LLC statutory liability shield.
However, nothing in the law is simple, and there are ten principal types of situations in which the Section 23 liability shield won’t protect New Hampshire LLC members or managers. The four most important situations are briefly stated below. For concreteness, I’ll assume that each of these situations involves a single-member New Hampshire LLC called XYZ, and I’ll assume that the member and manager of XYX is a hypothetical individual named Mary Jones.
1. Member’s or manager’s direct liability. Section 23 won’t protect an LLC member or manager if a third party makes a claim against the LLC based on the member’s or manager’s direct personal misconduct.
Example. While conducting XYZ’s business, Mary is driving an XYZ truck and strikes and negligently injuries John Jones, a pedestrian. Because of her personal negligence, Mary will be personally liable to Jones for his injury despite her single-member LLC liability shield.
2. Member’s or manager’s vicarious liability. Section 23 won’t protect LLC members or managers if they are vicariously — i.e., indirectly — responsible for a third-party claim against an LLC.
Example. XYZ owns a commercial building and rents it to ABC, a New Hampshire manufacturer. Mary hires a third party, Steven Smith, to manage the building and, in particular, to ensure the physical safety of visitors to it. Mary does not adequately investigate Smith’s competence and thus is unaware that visitors to other commercial buildings he manages have been physically injured by unsafe conditions. A visitor to ABC’s plant in XYZ’s building is injured because of unsafe conditions. Smith will be personally liable for this injury, but so will Mary because of her negligence in hiring Smith.
3. Veil-piercing. Section 23 won’t protect LLC members or managers if their LLC owes a debt to a third party and the third party successfully makes a veil-piercing claim against the member. A veil-piercing claim is a claim that regardless of any statutory liability shield, an LLC member should be held liable for an LLC debt because of basic fairness — for example, because the LLC’s member never bothered to obtain liability insurance for the LLC. Because of the potentially major risk that veil-piercing poses for New Hampshire single-member LLCs, I won’t provide a veil-piercing example here; instead, I’ll discuss the veil-piercing doctrine in detail in a future column.
4. Liability under non-LLC statutes. Section 23 won’t protect LLC members if they are personally liable for debts of their LLC under a non-LLC statute, such as a federal tax statute holding business owners personally liable for taxes their company fails to pay.
John Cunningham is a lawyer licensed to practice law in New Hampshire and Massachusetts. He is of counsel to the law firm of McLane Middleton, P.A. Contact him at 856-7172 or [email protected]. His website is llc199a.com. For access to all of his Law in the Marketplace columns, visit concordmonitor.com.
Law in the Marketplace is a legal advice column. It runs every week in the Sunday Business section. The author is a lawyer in Concord and not a member of the Monitor’s staff.
source: https://www.concordmonitor.com/Law-in-the-Marketplace-43904733
Your content is great. However, if any of the content contained herein violates any rights of yours, including those of copyright, please contact us immediately by e-mail at media[@]kissrpr.com.