Home > Uncategorized > Businesses: So You Want to Limit Your Personal Liability? Not so Fast.

Businesses: So You Want to Limit Your Personal Liability? Not so Fast.

I have a business client was concerned about liability – and what could he do to limit his liability?

 

 

That is certainly why a business would create a business entity –  to ensure that the owners of a company are not liable for the debts of the Company. The Michigan Limited Liability Act provides at MCL 450.4501 that:

“Unless otherwise provided by law or in an operating agreement, a person that is a member or manager, or both, of a limited liability company is not liable for the acts, debts, or obligations of the limited liability company.”

 
Therefore, for my business client I set up its articles of organization and created the Operating Agreement among the members of the Limited Liability Company and there we go – liability is limited…

 

 

but are members (owners) of a limited liability company really free from all liability while acting on behalf of the company?

 

 

 

The answer is “no“.

 

 

 

To this point, this past week I attended a Business Law Seminar put on by the Business Law Section of the State Bar of Michigan – one of the excellent practitioners who presented was Jeff Ammon, a partner at Miller Johnson. Jeff directed our attention several case law decisions – one such case was  Dep’t of Agric. v. Appletree Mktg., L.L.C, 2010 a Michigan Supreme Court decision – it is definitely worth expounding on.

 

 

 

I. Facts of Appletree Mktg

Defendant Appletree Marketing, L.L.C. (Appletree), was an apple distributor managed by defendant Steven Kropf, Appletree’s sole member. Although Appletree collected assessments for 2004 and 2005, it failed to remit any funds to the Committee. Instead, Appletree used the money to pay the company’s other debts. Dep’t of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 5, 779 N.W.2d 237, 240 (2010).

one of the two questions presented to the Supreme Court was:
 whether, under the circumstances of this case, the plaintiffs may pursue claims for common-law and statutory conversion against Appletree’s principal, Steven Kropf.” Id. at Page 6.
 –  Defendant, Kropf’s argument was essentially “I formed a business entity to limit my personal liability, so I shouldn’t be able to be sued personally – if there is any liability for my actions, only my business should be found liable.”
–   Kropf evidently did not understand that his limited liability company did not protect him from liability as to his own personal intentional wrongdoing.
II. Law
Corporate Officials may be Personal Liable for their individual bad acts
“Michigan law has long provided that corporate officials may be held personally liable for their individual tortious acts done in the course of business, regardless of whether they were acting for their personal benefit or the corporation’s benefit. Moreover, as Michigan courts have recognized, “[o]fficers of a corporation may be held individually liable when they personally cause their corporation to act unlawfully.” Dep’t of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 17-18, 779 N.W.2d 237, 246-47 (2010).
The Court held that if the facts show Kropf committed a “conversion” while acting on behalf of the Company,  “Kropf can be held personally liable and may not hide behind the corporate form in order to prevent liability for his active participation in the tort.” Dep’t of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 18-19, 779 N.W.2d 237, 247 (2010).
III. Lesson
Business owners and those in charge should understand what actions can make them personally liable (intentional wrongdoing and personal guarantee of business obligations), and what actions will limit their liability (See MCL 450.4501, referenced in part above).
Questions? Comments?
email: Jeshua@dwlawpc.com
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