Is the Corporate Veil as Strong as You Think?

Most members of a Louisiana Limited Liability Company (LLC) are familiar with the protections offered to them by what is endearingly known as the Corporate Veil. Pursuant to Louisiana Revised Statue 12:1320, as a member/manager of this particular formation, you are shielded from individual liability. However, under two very exceptional circumstances, the court will pierce the veil, and assign liability to individual members, thus defeating one of the primary benefits of LLC formation.

Typically, the corporate veil is pierced only when 1) the company is the alter ego of the members and has been used to defraud third parties; and 2) the members have failed to conduct business on corporate footings, such that distinguishing the corporation from its managers is impossible. In order to avoid finding yourself, or your fellow members in one of these circumstances, steer clear of commingling funds, under-capitalizing assets, failing to maintain separate bank accounts, and failing to hold regular shareholder meetings, to name a few.

And, even if the veil remains in place after a member has taken all above precautions, a disgruntled plaintiff has one last chance to pursue personal liability of the member based on the exception found in Louisiana Revised Statue 12:1320(D). According to the statute, if a member breaches his professional duty, or undertakes a negligent or wrongful act, the limited liability offered to him will be dispensed with. In the March 4, 2015 decision of Hodge v. Strong Built International, LLC, the Louisiana Third Circuit Court of Appeals determined the plaintiff failed to submit evidence to prove that the exception applied in that case. Plaintiff did not convince the Court that the member’s conduct 1) would be recognized as a tort; 2) a crime; 3) was in furtherance of a contract between the plaintiff and the LLC; or 4) was done outside the member’s capacity as a member. Ultimately, the Court determined that the corporate veil was better left intact.