Can a Non-Owner Become Liable for the Debts of an LLC?

There has been considerable litigation over the years regarding holding the owners of a company personally liable for the debts of the company even when the company is a properly established separate legal entity of a corporation or a limited liability company. These types of entities generally protect the owners from personal liability; however, when corporate formalities are not followed, and the company is really run like the alter ego of the owners, a lawsuit to pierce the corporate veil can make the owners personally liable for the debts of the company.

Not as common, is holding a non-owner liable for the debts of the company. Colorado allows a non-owner to be held personally liable when that person is a corporate insider, they had a substantial role in the company and the corporate form was used as an alter ego: “Where a corporate insider exercises substantial control over the corporation, uses the corporate form to transact his personal business, and treats corporate funds as though they were his own” they may be personally liable for the debts of the corporation or LLC. McCallum Family L.L.C. v. Winger, 221 P.3d 69, 75 (Colo. App. 2009). Therefore, the fact a company may be insolvent does not always mean there isn’t a case to recover money owed to a creditor. The issue of liability of the owners of the company is always an important factor to investigate.