Member And Manager Liability In An LLC

Member and manager liability in a limited liability company.

A limited liability company is an entity distinct from its member or members. § 30-25-108(a), Idaho Code. Members of a limited liability company are shielded from liability under the Idaho LLC statute, which provides:

A debt, obligation, or other liability of a limited liability company is solely the debt, obligation, or other liability of the company. A member or manager is not personally liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the company solely by reason of being or acting as a member or manager. This subsection applies regardless of the dissolution of the company.

The failure of a limited liability company to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a member or manager for a debt, obligation, or other liability of the company.

Idaho Code, § 30-25-304.
Although members and managers enjoy the protections of limited liability, there are some circumstances under which the corporate form will be disregarded, and the corporate veil will be pierced to hold individual members or managers personally liable for the debts of the entity. See Wandering Trails, LLC v. Big Bite Excavation, Inc., 156 Idaho 586, 329 P.3d 368 (2014). Members of an LLC are not liable for the misconduct of the company unless it is proven that the company is the alter ego of the member. Id.

To prove that a company is the alter ego of a member of the company, a claimant must demonstrate (1) a unity of interest and ownership to a degree that the separate personalities of the company and individual no longer exist and (2) if the acts are treated as acts of the company an inequitable result would follow. Id. In other words, the member or manager has treated the corporation as their alter ego, and it would promote an injustice to permit the members to escape liability.

Unity of Interest
Factors relevant to establish a unity of interest include evidence that the debtor deposited his or her own money into the company’s financial accounts for purposes other than meeting capital obligations; that the debtor used company funds to pay her own obligations; and that the debtor failed to maintain the separate identity of the company. The Idaho Supreme Court, in the context of piercing the corporate veil of a corporation, explained that a trial court may consider a variety of factors and is not required to meet any set number of factors before piercing the veil. Lunneborg v. My Fun Life, 421 P.3d 187, 200 (Idaho 2018). Lunneborg addressed corporate veil piercing, not alter ego determinations involving an LLC. See generally id. However, the court’s holding provided a general statement of the standards courts should apply “when making these equitable determinations.” Id. In re Jaques, 031220 IDBC, 18-01092-TLM.

Inequitable Result
Courts recognize that this factor “requires something less than an affirmative showing of fraud but something more than the mere prospect of an unsatisfied judgment. Lunneborg, 421 P.3d at 201-202 (Idaho 2018). It is in the court’s discretion to reach this conclusion.
If the court determines that these elements of the alter ego test are met, members and managers will likely be imputed the obligations and liabilities of the company; thus, held personally liable.

Contact an attorney from BRIAN WEBB LEGAL at (208) 331-9393 to discuss your business matters.