How LLC Managers are Not Liable for Fraudulent Statements on Behalf of the LLC

LLC stands for limited liability corporation and it is a business structure that combines that of a sole proprietor with a limited liability of a corporation. It combines the taxation of the two together. Being a manager of an LLC means you are not liable for fraudulent statements for the LLC, however. The reason for this is because, although you are a manager of the LLC, this does not mean you are liable for any other member of the LLC. Members of an LLC are referred to as either agents or actors. Keep reading to learn more about why this is true.

How Actors May or May Not Be Liable for Problems Within the LLC

There are three different determining factors to think about when trying to determine whether an actor is or is not liable when acting on behalf of an LLC. They include the following:

  • Determine whether the problem happened in contract or in tort.
  • Determine whether the breach happened by the actor to the LLC or to a third party.
  • Determine if the breach caused harm, and if so, whether physical harm to an individual or if there was harm done or damage done to a third party.
  • Determine if there was money lost from the individual or third party while the manager was acting on behalf of the LLC.

Difference Between Contract and Tort

Although agents or actors on behalf of an LLC are applicable to the same rules as other agents, when it comes to a binding contract between an LLC and an actor, they are not liable to a third party outside of an LLC when something happens. However, the rule that protects these actors is only because the third party is relying on the fact that the actor is performing under the binding contract.
When it comes to a tort that happens because of damage done to a third party, the rules are a little bit different. If something happens to a third party because of the actor's tortious conduct, they are liable to the third party. This is especially true if harm comes to the third party because of the tort or damage to their property happens. This is true whether or not the actor is acting on behalf of the LLC or by themselves.

Economic Loss Vs. Physical Harm

When it comes to economic loss, the rule is that the actor on behalf of the LLC is not liable for economic loss. However, when you are talking about physical harm, that is a different story. The actor is liable for harming another person. When someone has only suffered economic loss, the agent acting on behalf of the LLC is not liable for their total monetary loss. However, there are exceptions to this rule. This protection does not apply toward professional services or even fraud.

Last Updated: 
April 8, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

Learn How To Achieve Total Asset Protection While Growing Your Professional Network

Ready to know more than your attorney? Join our community platform where you'll get immediate FREE access to all our best educational resources for real estate investors. Including 8 Masterclasses, group mentoring replays, and much, much more.



Join thousands of real estate investors in all 50 states as they enjoy exclusive content, special promotions, and behind-the-scenes access to me and my guests. No spam, ever. Just great stuff!




Do you have asset protection questions? We can help!


© 2023 - Royal Legal Solutions