Are Members Responsible for LLC Debts?
Ordinarily, only the LLC entity itself is responsible for all of the company’s debts, thus protecting its members from individual liability. However, there are some exceptions where the individual members may be held liable. The exceptions are as follows: 1. Guarantor Liability is where an LLC member has personally guaranteed the obligations of the LLC, he or she will be liable. For example, if an LLC entity is relatively new and has no credit history, a prospective landlord about to lease an office space to the LLC will most likely require a personal guarantee from the LLC members before executing such a lease. 2. Alter Ego Liability is very similar to the judicial doctrine applied to corporations where a court may hold the individual shareholders liable when a business entity is an “Alter Ego” of its shareholders. Members of an LLC may also be held liable for the LLC’s debts if the court imposes an “Alter Ego Liability” doctrine.
