The limited liability company is a relatively new form of business entity. The traditional business corporation, on the other hand, has been around for decades. Most basic principles of law for business corporations are well established. One of these is called "piercing the corporate veil." It permits a court to disregard the limited liability of a corporation to impose personal liability on a corporation's shareholders or officers. For example, an individual using a corporation for fraudulent activity may not be able to hide behind the limited liability of the corporation to avoid personal liability. But piercing the corporate veil can be a difficult procedure, as courts are reluctant to override the limited liability of a business corporation.
With a limited liability company, the question is whether the principle of "piercing the corporate veil" can apply. Recently, an Illinois court, interpreting Delaware limited liability law, held that it could. (Westmeyer v. Flynn, Illinois Court of Appeals, 1st District, May 20, 2008) The case involved a wage claim in Illinois against a Delaware LLC. Analyzing Delaware limited liability law, the court held, "We conclude that, under Delaware law, the doctrine of piercing the corporate veil applies to a limited liability company. Just as with a corporation, the members of an LLC are not generally liable for the obligations of the LLC. However, under Delaware law, just as with a corporation, the corporate veil of an LLC may be pierced, where appropriate."
This, of course, does not mean that a limited liability company does not have limited liability. However, it does mean that an LLC's members and managers will have the same concerns about preserving limited liability as do officers and directors of a business corporation.