On January 9, 2014, the Iowa Court of Appeals published its opinion in Northeast Iowa CO-OP., n/k/a Viafield v. Joel Lindaman et al., No. 3-1058 / 13-0297 January 9, 2014 (Full Opinion Here), which is yet another Iowa Court of Appeals opinion addressing member liability in an Iowa limited liability company (“LLC”). In particular, the opinion addresses whether the plaintiff, Viafield, can pierce an LLC’s corporate veil and hold the defendant, Lindaman, personally liable for the LLC’s debts.
Viafield requested the Court pierce the LLC’s corporate veil under several legal theories. Before assessing Viafield’s legal theories, however, the Iowa Court of Appeals acknowledged an LLC’s corporate veil may be pierced in Iowa upon establishing one of six different factors:
Iowa courts may disregard a corporation’s existence if (1) it is undercapitalized, (2) it is without separate books, (3) its finances are not separated from individual finances, (4) it pays an individual’s obligations, (5) it is used to promote fraud or illegality, or (6) it is merely a sham. Briggs, 262 N.W.2d at 810.
One of Viafield’s arguments for piercing the LLC’s veil and holding Lindaman personally liable was that the LLC “did not hold meetings and no minutes exist.” Viafield, p. 18. We previously addressed this very argument (here), pointing out that Iowa law affords protections to LLCs even when an LLC fails to observe certain corporate formalities. In Viafield, the Iowa Court of Appeals recognized that under the facts in the case, the LLC’s failure to hold meetings and lack of corporate minutes did not require the court to pierce the LLC’s veil of protection and impose personal liability upon Lindaman for the LLC’s debts:
Because the statute (Iowa Code Section 489.304(2)) specifically provides the failure to “observe any particular formalities is not a ground for imposing liability on the members” for company debts, we are not persuaded [to pierce the corporate veil].
Id. As evidenced by the excerpt above, despite the LLC’s failure to hold regular meetings and despite its failure to keep corporate minutes, the Iowa Court of Appeals refused to pierce the LLC’s veil and hold Lindaman personally liable for the LLC’s debts.
To learn more about piercing the corporate veil and personal liability protections, click here, here, and here, or consider contacting a licensed attorney in your jurisdiction who can help explain these legal concepts and also assess whether you or someone you know may be liable for a corporate debt.
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