Can an LLC Be Held Liable for the Actions of Its Members?

Working with an incorporation lawyer with Las Vegas experience is the best way to get clear, specific answers on whether your LLC can be held liable for the actions of its members. It will all depend on your authority, operating agreement, and what the member did precisely.

When an LLC Can Be Held Liable for a Member’s Contracts

Under Nevada law, no debt or liability can be contracted on behalf of an LLC except by a manager in a manager-managed company, a member in a member-managed company, or an authorized agent, officer, or employee as specifically set out in the operating agreement or another writing.

Member-Managed LLC

If a member in a member-managed LLC signs a vendor agreement or incurs an obligation while carrying out ordinary business, the LLC itself is bound and can be held liable for performance or breach. This same principle covers property deals. Instruments for buying, selling, or mortgaging company assets are valid and bind the LLC only when they are signed by an authorized member in a member-managed structure, unless the articles or operating agreement restrict that power.

Manager-Managed LLC

In a manager-managed LLC, members usually don’t have automatic authority to bind the company unless the operating agreement or a separate writing expressly grants it. A member acting on a personal matter or outside the granted scope doesn’t pull the LLC into liability.

The Operating Agreement

Your operating agreement controls the outcomes to a large degree. It can, for example, require dual signatures for incurring an obligation, set dollar limits on what can be incurred, or assign specific roles so only designated members or managers can commit the company. It’s very important to always update your business operating agreement regularly so it’s fit to purpose, clear, and reduces the chance that any one member’s decision can expose the LLC.

Liability for Member Torts and Other Actions

When a member acts as an authorized agent or within the scope of company business, the LLC can be held responsible under standard agency principles applied to the entity. The LLC, as a distinct legal person, stands behind the acts it has empowered. However, if the member steps outside that scope in doing something personal, pursuing an unapproved side deal, or ignoring limits in the operating agreement, the LLC typically faces no liability.

Key Protections Through Proper Governance

The best way to protect your company is through proper governance proceedures with:

• A clear operating agreement that manages and limits exposure
• Clear contracts with all third parties that specifically state the capacity of all members who sign it
• Regular reviews of governance when members are added or change roles

Talk to an Incorporation Lawyer

Your LLC can be held liable for a member’s actions only when the member has actual authority to bind your company under legal statute or your operating agreement. If you keep those documents tight, you control the outcome. Talk to us today at Hutchings Law Group in Las Vegas and Henderson, NV. We focus on crafting solutions that are specific to your company and the economic pressures your business faces every day.

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