Know The Law: LLCs Exempt Owners from Personal Liability

Published in the Union Leader

Q: My partner and I own and operate several LLCs (limited liability companies) for which we are the only owners. We formed these LLCs, in part, to protect our personal assets from the debts and obligations arising from our business activities. The administrative work in following necessary corporate formalities of the LLCs is turning out to be quite burdensome.  Are we, in fact, protected from all liabilities and debts of our LLCs?

A: Generally speaking, LLC members (owners) and managers are not liable for the debts or obligations of the LLC. The law views the LLC and its owners as separate legal entities, and New Hampshire’s LLC statute explicitly exempts members and managers from personal liability for an LLC’s debts and obligations, whether they arise out of contract, tort (for example, negligence), or otherwise.

The statute provides two exceptions to this general rule. First, a member or manager can agree to be personally liable for the debts, obligations, and liabilities of the LLC under certain circumstances – when asked to provide a personal guaranty in connection with a loan, credit, or a lease, for example. Second, if the LLC dissolves and distributes its assets in liquidation, a claim may be brought against a member of the LLC based on the member’s pro rata share of the claim or the assets of the LLC distributed to the member in liquidation, whichever is less. However, a member’s liability for all claims is capped at the amount of assets distributed to the member.

There are also circumstances under which courts will “pierce the corporate veil” to assign individual liability to corporate owners. Though the New Hampshire Supreme Court has never considered the issue, it would likely pierce the veil under the same circumstances as permitted for corporations – generally, if the LLC has been used to promote an “injustice or fraud.” While there is no bright-line rule for determining when a member or manager may be held personally liable for corporate debts, factors considered by courts in New Hampshire and Massachusetts have included: disregard for corporate formalities; absence of corporate records; insufficient capitalization at the time of incorporation; and common ownership and pervasive control of multiple entities.
While it is a relatively rare occurrence for a court to assign personal liability to corporate owners in this way, members and managers of LLC should nevertheless be sure to observe corporate formalities and keep careful and distinct records, particularly if they own multiple LLCs.
Patrick Taylor can be reached at
Know the Law is a bi-weekly column sponsored by The McLane Law Firm.
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