Legal Memorandum: Liability of Shareholders

Issue: Is it preferable, for purposes of limiting personal liability, for a Connecticut sole proprietorship to incorporate as a Subchapter S corporation or as a limited liability company?

§ 33-673 of the Connecticut Business Corporation Act provides that shareholders of Connecticut corporations are not liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.  Although this statutory provision is drafted in broad fashion, a body of Connecticut case law has been decided over the years which effectively limits the liability of shareholders of Connecticut corporations.

§34-133 of the Connecticut Limited Liability Company Act provides, in relevant part, as follows:

[A] person who is a manager or a member of a limited liability company is not liable, solely by reason of being a member or manager, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the limited liability company, whether arising in contract, tort or otherwise or for the acts or omissions of any other member, manager, agent or employee of the limited liability company.

This statutory provision is explicit in its delineation of the limited liability of members of a limited liability company.  However, a body of Connecticut case law has yet to be decided specifically interpreting this statute.  The extent to which other jurisdictions would recognize the limited liability of members of Connecticut limited liability companies is unclear.  Although all fifty states and the District of Columbia have adopted limited liability company legislation and it generally appears that the vast majority of jurisdictions will recognize the […]