Found an issue on this page? Let us know and we will look into it as soon as possible.
What are the legals rights of an authorized representative/officer of an LLC? If the person gets sued, are they protected?
Anonymous7 views3 answers
I started up an LLC and did it incorrectly. I accidentally added my partner as an authorized representative instead of a member/manager. It is $100 to make an amendment to the LLC or I can wait until the annual review which is a ways away. We are a new business and tight on money. I just want to make sure my partner is protected under the LLC as a authorized representative or officer. If she is, I will wait to make the change at our annual review. If she is not protected, I will add her as a member/manager as soon as possible. Thank you!
You need tomhave an Operating Agreement for the LLC as is typical and such Op. Agmt. Should contain boilerplate clauses that provide an LLC member, officer or authorized representative indemnification for any actions done on behalf of the LLC in good faith.
An agent acting within the scope of the agency is protected, in the sense that they are entitled to indemnification by the principal. If the principal has no assets, then there may be liability on the part of the individual for the wrongful act and its consequences. So long as no crime or intentional wrong is committed, however, there should be indemnity available to your partner. That said, it is always better to set it up properly from the start. Consult an attorney and get it fixed now and not later.
Anyone can be sued, but observing a few simple rules will minimize the risk of anyone successfully suing a member of an LLC acting in a representative capacity:
(1) Keep the business properly capitalized - i.e., leave enough in the corporate bank account to handle typical recurring expenses and costs for operating the business as a going concern;
(2) Don't commingle funds - don't use the company bank account to pay your personal bills (groceries, home utilities, etc) - probably not an issue if you are currently tight on money but in any case, if you are going to take money out, do it as a distribution / salary;
(3) Sign contracts in a representative capacity rather than in a personal capacity - indicating your title below your signature.
and of course
(4) Purchase errors and omissions and commercial general liability insurance.
Observing these rules wont guarantee you wont be sued, but they will make it very hard for a plaintiff to pierce the corporate veil and successfully attack your member(s)/manager(s) personally. And the insurance may even pick up the cost for defending your member(s) if you have the right coverage.
