Limited Liability Protection of NY LLCs Limited
On December 29, 2014, Assembly Bill 8106-C / Senate Bill 5885-B became the law in New York. In part, the new law makes the ten LLC members with the largest ownership interests in the LLC personally liable, jointly and severally, “for all debts, wages or salaries due and owing to any of [the LLC’s] * * * laborers, servants or employees, for services performed by them for” the LLC. The new law took effect on February 25, 2015.
This concept is not new to New York law; it has been the case for quite some time that the ten largest shareholders of every privately held corporation in New York also have the same obligation. Specifically, Section 630 of the New York Business Corporation Law makes every privately held corporation’s ten largest shareholders personally liable, jointly and severally, “for all debts, wages or salaries due and owing to any of [the corporation’s] . . . laborers, servants or employees other than contractors, for services performed by them for such corporation.”
Prior to the new law, members of a limited liability company generally would not be held personally liable for obligations of the LLC. But the new law creates a limitation to the limited liability protections of an LLC by essentially negating limited liability altogether with respect to workers’ claims for unpaid wages.
Under the new law, in order for a worker to hold the ten largest members of an LLC liable for compensation owed to the worker, the worker must, within 180 days after he or she stops working for the LLC, give notice to the members of the worker’s intention to hold them personally liable for the worker’s unpaid compensation. This notice requirement also parallels that set out in the Business Corporation Law.
Before a worker may hold the members with the largest ownership interests liable for the worker’s unpaid compensation, (i) the worker must recover a judgment against the LLC for the unpaid compensation, and (ii) an execution against the LLC for that judgment must be returned unsatisfied. Within 90 days of the return of the execution, the worker must then file a lawsuit against the members individually in order to obtain a judgment against them for the unpaid wages.
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