Attorney & Law Firm Directory Verified US Attorneys
Sign In Free Sign Up

Are the LLC Manager personally liable for mis-management?

· · 0 views
This is a California investment LLC which has 20+ members and 3 member Managers
One of the Managers was also the President of the LLC, and he had more active roles than the other two Managers.
Three years later, we found out that LLC President grossly mis-managed the LLC. He didn't pay $800 annual FTB fee for three years which resulted in huge penalty, he also did not pay some property tax for real estate holdings which also resulted in huge penalty.
Before we could do anything, he quickly sold out his LLC shares to other members, and resigned from Manager/President position.
So is he personally liable for the damages/loss/penalty he has caused to the LLC?
In addition, the other two Managers did nothing to stop the problem early, are they also personally liable?
Can we sue them?

4 Attorney Answers

Best Answer
More information needed but I ASSURE you all of them (managers) are liable . BUT many red flag are appears present to the above described facts. It seems that you have more than a mismanagement issue. IT SEEMS that you maybe you have issues of serious fraud that was committed by the president and possibly the managers.
It is important to point to you that maybe that was a move of accommodating a takeover of the LLC by selling in big price their shares or promised future benefits or gains by the new owners of the shares.
All the above need serious evaluation ASAP. Very few of us in avvo, including me are not only attorneys but also fraud examiners (CFE) that can assist you in your case.
From your limited facts it appears there may be several claims, especially where the breach is something as simple as paying the tax due. I suspect there may be additional damages, but only an attorney you retain and who interviews you and reviews all your papers can give you proper analysis. I suspect the corporation was not properly registered for its investment business and that the securities issued to you were improperly issued (which implies a remedy of restitution.)
Whether the "other two Managers" may have liability will be fact-dependent and not "automatic" as my colleague suggests. Based on years of experience, the line between fraud and incompetence is not as easy to prove as it is to allege. Perhaps, but certainly not always.
You indicate that a manager neglected some of his duties. I would be surprised if you could make a successful argument that he was operating outside the scope of his responsibilities and therefore was personally liable for the penalties for not paying an LLC bill on time. I would also suggest that a bill that is unpaid for three straight years means that other managers probably were neglecting their duties (oversight, audit, etc.).
My colleague seems to disagree with me on the personal liability issue, and is likely more knowledgable about this than I.
This is California you can always sue. It is also very likely that you have causes of action against the managers which they might be personally liable. Unless your operating agreement indicates that you would be reimbursed attorneys fees, you may not be able to recover your attorneys fees in pursuing the lawsuit. Depending on the amount of potential damage it made or may not be beneficial to proceed with a lawsuit.

Sign in to answer this question.

Sign In or Sign Up as an Attorney