Limited Liability Protection of LLC not absolute

Section 609(a) of the New York Limited Liability Company Law provides that an LLC member is not personally liable for the debts and obligations of the LLC.  That is the beauty of having formed a limited liability company.  If the LLC goes under, you keep your house.

However, as illustrated by a recent New York decision*, this protection is far from absolute.  If you as a member of the LLC do something objectionable under the law, you may be on the line.

A woman got fired by her employer (a New York limited liability company) and claimed violations of New York’s Human Rights Law (Section 296 of the Executive Law), because she believed she was fired due to her  disability.  She sued the LLC as well as one of the managing members of the LLC.  The member tried to hide behind the limited liability shield of the LLC and raised Section 609(a) as a defense.   The court would not hear it.  The court  held that section 609(a) "does not extend to violations of [the New York Human Rights Law] by a person with an ownership interest in, or the power to make personnel decisions for, the organization." Pursuant to the court’s decision, the LLC member was subject to liability if the fired woman could show that he was involved in the termination of the woman’s employment by “encouraging, condoning, or approving it.”

*As reported by the Unincorporated Business Law Prof Blog: Pepler v. Coyne, 822 N.Y.S.2d 516 (2006).

About Imke Ratschko


Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027.

One comment

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