In 2014, the Wyoming Supreme Court reached its controversial decision in Greenhunter Energy, Inc. v. Western Ecosystems Technology, Inc1, in which it held the sole member of an insolvent single-member LLC personally liable for the LLC’s unpaid debts.
As a direct result of that decision, Wyoming added new subsections (c) and (d) to Section 17-29-304 of the Wyoming Statutes, effective March 15, 2016. These new subsections establish factors that a court may consider when determining whether a member or manager of a limited liability company (“LLC”) can be held liable for the LLC’s debts, obligations, and other liabilities. Under new subsection (c), a court shall consider only the following factors, no one of which (except fraud), is sufficient to impose liability: (i) fraud; (ii) inadequate capitalization; (iii) failure to observe company formalities; and (iv) the intermingling of assets, business operations and finances of the LLC and the members to such an extent that there is no distinction between them.
Under new subsection (d), in making its determination under section (c), a court cannot consider factors intrinsic to the character and operation of the LLC, such as (i) the ability of the LLC to elect to be treated as a “disregarded entity” for federal income tax purposes; (ii) flexible operation or organization including the failure to observe any particular formality relating to the exercise of the LLC’s powers or management of its activities; (iii) the exercise of ownership, influence and governance by a manager or member; or (iv) the protection of members’ and managers’ personal assets from the obligations and acts of the LLC.
- Barry S. Engel and Eric R. Kaplan
12014 WY 144, 337 P.3d 454 (2014).