Just as shareholders in Iowa corporations are, by default, generally not liable for the debts and liabilities of their corporation, members (a.k.a. owners) in Iowa limited liability companies are also generally not liable for the debts and liabilities of their companies (see this article for more information about protections provided to shareholders in Iowa corporations). Put another way, the “limited,” in limited liability company (L.L.C.) actually means something and conveys just what Iowa law provides: limited liability for members.
Iowa black letter law provides that members in an Iowa limited liability company enjoy limited liability and, by default, are generally not liable for the debts, obligations, or other liabilities of an Iowa LLC:
For debts, obligations, or other liabilities of a limited liability company, whether arising in contract, tort, or otherwise all of the following apply:
a. They are solely the debts, obligations, or other liabilities of the company.
b. They do not become the debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as a member or manager acting as a manager.
Iowa Code Section 489.304 (emphasis added). The protections reproduced above are often referred to as a “shield of liability” or the “corporate veil.” These important liability protections often serve as a fundamental reason that entrepreneurs and business owners alike decide to create legal entities (companies and corporations) in the first place – to limit personal liability. Comparatively, if entrepreneurs and business owners decided to proceed on their own without creating and operating under a formal entity such as an Iowa LLC, a much greater risk of personal liability exists for any debts, obligations, and actions. It is important to note, while the provisions reproduced above certainly create legal protections and will provide comfort to many members in Iowa limited liability companies, as with many legal principles, the protection is not absolute and instances exist in which Iowa courts will recognize limited liability and the legal protections, but nonetheless “pierce the corporate veil” and hold members and managers in Iowa companies liable. To read more about piercing the corporate veil, click here.
If you have questions about whether you or someone you know may be personally liable or potentially liable for the acts, debts, or other liabilities of an Iowa limited liability company or you are seeking to obtain protections under Iowa’s LLC umbrella of protection, you should consider contacting a corporate dispute attorney.
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