Under what circumstances can shareholders or LLC members be held personally liable in Georgia?

Shareholders or LLC members can be held personally liable in Georgia if the entity is undercapitalized. This principle relates to the concept of "piercing the corporate veil," where courts may disregard the limited liability provided by a corporation or LLC if certain conditions are met. One of these conditions is undercapitalization, which occurs when a business does not have sufficient capital to cover its liabilities or to operate effectively. If it’s determined that the business was established with inadequate capital specifically to avoid liabilities, the owners may be found personally liable for debts and obligations incurred by the business.

The rationale behind this is that limited liability protections are intended for legitimate businesses that operate with enough capital to meet their financial responsibilities. When owners engage in undercapitalization, it may be seen as an abusive practice designed to shield assets from creditors, thereby justifying personal liability.

While the management activity or participation in business decisions can have implications for liability, mere active management or lack of participation does not automatically result in personal liability. Additionally, the presence of a majority shareholder does not inherently lead to personal liability amongst shareholders or members. Instead, liability concerns focus more on factors such as capital adequacy and adherence to corporate formalities.