Member’s Exposure to Liability for Owning an Interest in an LLC

Under the Florida Revised LLC Act, a debt, obligation or liability of an LLC is solely the responsibility of the LLC and a member cannot be held personally liable solely because of the member’s status as a member.  In addition, an LLC’s failure to observe formalities relating to the exercise or management of the LLC’s affairs is not a sufficient ground to impose personal liability against the member.  See Fla. Stat. § 605.0304.

Similarly, in a member-managed LLC, with limited exceptions, a member is not personally liable for damages to the LLC, other members, or any third party for any statement, vote, decision or failure to act regarding management or policy decisions by the member. See Fla. Stat. § 605.04093.  The exceptions are when:

• The member has breached any duties; and
• The member’s duties constitute any of the following:
  • A violation of criminal law unless the member had reasonable cause to believe his, her or its conduct was not unlawful;
  • A transaction from which the member derived an improper personal benefit;
  • The member made or received an improper distribution;
  • The member engaged in willful misconduct or acted in conscious disregard of the best interests of the LLC; or
  • In an action by a third party, the member’s misconduct was reckless, in bad faith, of malicious purpose, or exhibited wanton and willful disregard of human rights, safety or property.

See Fla. Stat. § 605.04093.

As to what constitutes an improper personal benefit in 2(b) above, a member in a member-managed LLC is deemed not to have derived an improper personal benefit from any transaction, if the transaction is “fair” to the LLC.  See Fla. Stat. § 605.04093(3).  “Fair” means the transaction on the whole is fair in terms of the member’s dealings with the LLC and is comparable to what might have been obtainable in an arm’s length transaction.  See Fla. Stat. § 605.04092(c)(1).

In sum, a member of an LLC has only limited exposure for owning a membership interest in an LLC.  The exception to that limited exposure is when (a) the member engages in criminal, reckless or willful misconduct that harms the LLC, (b) the member derives an improper personal benefit from the LLC, or (c) the member receives an improper distribution.