Legal Question in Business Law in California

Re: LLC personal liability ''exceptions''.

The exceptions to personal liability protection with an LLC are substantially the same as those afforded by a corporation, and fall into the following categories:

(1) Alter-ego or "veil piercing," where if the owners of the LLC disregard its separate nature to the detriment of a third party, so will the courts.

A typical example is failure to keep the assets and records of the LLC entirely separate from personal assets and records of the owner(s), treating the LLC as a sort of personal piggybank.

(2) Intentional torts or crimes of the LLC such as pouring the LLC's toxic waste onto a neighbor's property will probably result in civil and/or criminal liability of the owners if they did, permitted or condoned the action.

(3) LLC insiders can become liable to other insiders for deliberate or careless acts of mismanagement, such as failing to attend to their duties to the detriment of investor-members.

Needless to say, LLC insiders can also become liable by giving personal guarantees!

These are just examples intended to show the main categories where personal liability might arise, and is not intended to be an exhaustive list. However, in real life LLCs provide reasonably good protection to owners who conduct business by the rules, and cases of personal liability are rather rare.