January 16, 2020
When forming a business, using a limited liability company, or LLC, can have several advantages. For many years, Illinois courts had maintained that an LLC member or manager could not be held liable for torts he or she personally committed while acting pursuant to his or her role within the business.
On January 1, 2020, however, this protection evaporated when the Illinois General Assembly amended the State’s Limited Liability Company Act. This change has eliminated the legal indemnity previously offered to Illinois LLC members and managers.
LLC Member Tort Liability Before January 1, 2020
Prior to the beginning of this year, Illinois LLC members and managers were shielded from civil liability for their tortious acts. This protection stemmed from two state appellate opinions, Dass v. Yale and Carollo v. Irwin, both of which interpreted the Limited Liability Company Act as it was written at the time. Looking at the statute’s pre-amendment language, the courts in both cases determined that an LLC member or manager, when acting on behalf of the business, could not be held personally liable for his or her wrongful acts, including fraudulent conduct. This result came from a reading of section 10-10 of the Act, which stated that:
the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager.
Based upon this language, the status quo for Illinois LLC members and managers was a guarantee of broad, wide-reaching protections that shielded them from liability, provided that they were acting on behalf of their businesses.
LLC Member Tort Liability After The Amendment
As of January 1, 2020, the legal indemnity that LLC members and managers enjoyed vanished, with the amendment of the Illinois Limited Liability Company Act. The amended language specifically overruled Dass and Carollo, clarifying section 10-10 of the Act to clearly state that members and managers of an LLC may be liable for tortious conduct, despite the fact that their wrongful acts or omissions may have been carried out on their LLC’s behalf.
As a result of the amended Limited Liability Company Act, LLC members and managers should carefully police their conduct when acting on behalf of their businesses. The safety net they were once able to utilize has been legislatively cut.
Goldenberg Heller & Antognoli, P.C. has a team of skilled business and commercial legal experts who can help navigate the complexities of the law. Feel free to contact us with your legal needs today at (800) 782-8492.