Piercing Liability Protections of a Limited Liability Company - Some Ideas by Way of North Carolina

Wilmington North Carolina Business Law and Litigation Attorney Blog has a multi-part article on getting past the personal liability protections of a LLC. This article bears paying attention to for Indiana limited liability companies.

I have yet to see a case from Indiana on the subject but it is one that interests me both from the perspective of creating limited liability companies for clients and also because I may be suing a limited liability company. North Carolina might have some ideas for Indiana. In Piercing the LLC Veil in North Carolina - Part II, the North Carolina statute is quoted:

The North Carolina Limited Liability Company Act protects LLC members from liability for the actions of the LLC. N.C.Gen.Stat. § 57C-3-30(a) provides:

A person who is a member or manager, or both, of a limited liability company is not liable for the obligations of a limited liability company solely by reason of being a member or manager or both, and does not become so by participating, in whatever capacity, in the management or control of the business.

Indiana's has a similar statute:

IC 23-18-3-3 Personal liability of members, managers, agents, or employees
(a) A member, a manager, an agent, or an employee of a limited liability company is not personally liable for the debts, obligations, or liabilities of the limited liability company, whether arising in contract, tort, or otherwise, or for the acts or omissions of any other member, manager, agent, or employee of the limited liability company. A member, a manager, an agent, or an employee of a limited liability company may be personally liable for the person's own acts or omissions.

If anything, Indiana offers wider protection to limited liability companies. Neither North Carolina nor Indiana defines the acts or conduct or omissions that might lead to personal liability.

Apparently, North Carolina lawyers have attempted to use the traditional, veil-piercing factors from corporations law as a guide to piercing the liability protections of the LLC. I must agree with this paragraph:

Of course, such an approach misses the obvious: an LLC is not a corporation. They are different types of business entity altogether. Just because the courts can look past a corporation's liability protection under certain circumstances, it does not automatically follow that those exact same circumstances should cause an LLC member to lose liability protection.

Not knowing the facts of the North Carolina cases, I am left with some guesswork about the reason for using corporations law. Either it is a sign of how conservatively our lawyer's brains work or it is a sign of laziness or both. I would think the better analogy would be to limited partnerships. Whether such an argument gets one any further in piercing a LLC's liability protection is a question for another time but I doubt this argument would be any more successful.

I also suggest reading Piercing the LLC Veil in North Carolina - Part 3. In this part, the argument appears to be that creating a LLC for the purpose of defrauding creditors might lead to a piercing of the veil. I find this appealing as an equity style argument but I keep thinking the evidence had better be pretty and prepare for an appeal if successful.