By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Limited Liability Company (LLC) Attorney
People create Limited Liability Companies to either avoid or reduce their personal liability. An LLC does provide a “buffer” to protect each LLC member from personal liability in an event of a lawsuit or claim arising from negligence caused by another or failure to perform an obligation under a contract and other matters not related to intentional wrong-doing by the members individually but, if the member is a perpetual wrong doer, the LLC laws will NOT protect him/her. That is to say, the creation of an LLC (or corporation) to protect you from intentional actions known to be illegal or fraudulent is not immune.
Fact Pattern #1: Carrot Juice LLC (a fictitious name) sells carrot juice from carrots grown and harvested from a farm in New Jersey. They buy low, sell high. That’s good for them. Unbeknownst however, one particular farm has sprayed a highly toxic chemical causing the carrot juice to make people very sick. They sue the Carrot Juice company. The LLC’s insurance responds and as a general rule under their fault the member would not be personally liable.
Fact Pattern #2: Same thing, except the LLC members are well aware of the danger of the weed killer and decide to buy a large inventory of carrots from the farm using it, anyway. They think the LLC will protect them from lawsuits. The fact that they operate under an LLC will NOT protect the members from their deliberate decision to sell something they know will poison people.
In my second example there is borderline, criminal intent; the use of an LLC or any other legal device to “get away with it” won’t stand. On the other hand, proving the intent to the court’s or jury’s satisfaction may be much more difficult. And because the LLC will certainly be named, it may be the LLC alone which is pursued and found liable, at the end of the trial. But not likely. The members will likely also get slammed.
The takeaway here? No one should assume that an LLC will automatically protect an owner(s) from prosecution on court liability from everything they do. That’s the plain and simple point of the blog. But in a world of laws, things can get complicated, and the facts of each hypothetical as well as the particulars of the case must always be identified and distributed to the attorney qualified to advise.
Among the worst things that can happen to an LLC member is to discover that he or she hasn’t paid attention to the requisite formalities, and that the LLC structure is disregarded and personal liability is imposed, including failure to withhold payroll tax.
To discuss your NJ LLC matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.