Wisconsin Limited Liability Companies – What Is the True Limitation of Liability?
Wisconsin business owners often establish limited liability companies (LLCs) to protect the personal assets of the owners from business liabilities. The goal in establishing an LLC is that—if the LLC is sued or fails—only the LLC’s assets can be targeted. A recent Wisconsin case calls into question these protections, especially in cases where the member-owner of the LLC personally completes the work. This article summarizes that recent case in the State of Wisconsin that is on appeal dealing with the personal liability of a member-owner acting on behalf of the LLC and also addresses our recommendations for how Wisconsin business owners can protect themselves from liability.
LLCs
One of the more common ways in which an individual can undertake a business venture, while limiting the associated liability, is to structure a limited liability company. According to the Internal Revenue Service definition, “[a] Limited Liability Company (LLC) is a business structure allowed by state statute . . . [in which o]wners of an LLC are called members.” (https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc) Inherent in the name, the LLC seeks to limit the extent of economic loss to assets invested in the organization and that keeps the personal assets of investors and owners off-limits.
Garrett v. Ocean View Swimming Pool Services, LLC
In Garrett v. Ocean View Swimming Pool Services, LLC, it is alleged that Ocean View Swimming Pool Services, LLC (Ocean View) and member-owner Kelly Brown negligently performed the maintenance of draining Richard Garrett’s in-ground swimming pool. As a result of the negligence, the pool was damaged, the use of it was lost, and it will have to be replaced at significant expense. Garrett v. Ocean View Swimming Pool Servs., LLC, 2025 Wisc. App. LEXIS 3.
Ocean View and member-owner Brown sought dismissal of Brown from the lawsuit on the basis that Brown cannot be held personally liable for the alleged damage and negligence of Ocean View, because the work done by Brown was as member-owner of the LLC, not as an individual.
Garrett countered that Brown is personally responsible for his own negligence.
The Circuit Court granted the summary judgement motion and dismissed Brown from the lawsuit. In doing so, the Court relied on Wis. Stat. § 183.0304(1), which provides that a “debt, obligation, or other liability of a limited liability company is solely the debt, obligation, or other liability of the company . . . a member or manager is not personally liable . . . solely by reason of being or acting as a member or manager.” Garrett appealed.
The Court of Appeals agreed with Garrett and found that the Circuit Court erred in granting summary judgement and dismissing Brown. Citing Ferris, “Wisconsin case law has firmly established that individuals are liable for their own tortious conduct.” Ferris v. Location 3 Corp., 337 Wis. 2d 155. Additionally, in Oxmans’, “[a]n individual is personally responsible for his own tortious conduct” and in Hanmer, “[t]he general rule is that the agent, as well as the principal for whom he is acting is responsible for the tortious acts of the agent.” Oxmans’ Erwin Meat Co. v. Blacketer, 86 Wis. 2d 683, Hanmer v. DILHR, 92 Wis. 2d 90.
Ocean View and Brown asserted that the present case is different than Oxmans’ and Ferris, as those cases dealt with intentional, fraudulent misrepresentation made by members, not negligence.
However, in Casper, the Court of Appeals determined that the circuit court properly found that a claim against a corporate officer for personal liability is permitted within the case language of Oxmans’. Casper v. American International South Insurance Co., 323 Wis. 2d 80.
Ultimately, the Court of Appeals reversed and remanded the circuit court’s decision that Brown cannot be held personally liable for his negligent maintenance of Garrett’s pool, as Ocean View and Brown did not sufficiently develop either their § 183.0304(1) position (member-owner Brown not personally liable for liability of the LLC solely by reason of being or acting as a member) or their Oxmans’–Ferris position (those cases apply only to intentional, fraudulent misrepresentations), necessitating consideration by the Court. The Court determined that Garrett contends that Brown is legally responsible, not for the LLC’s liability, but for his own personal negligence.
Depending upon the outcome of this case, the limited liability that one seeks to achieve by virtue of establishing an LLC could be eroded. If a member-owner of an LLC can be held personally liable for negligent actions taken while performing responsibilities associated with the LLC, the benefits of mitigating financial exposure through the creation of the LLC would be eliminated.
Recommendations
This case serves as an important reminder that running your business through an LLC is not a bulletproof shield for a business owner’s personal assets. We recommend the following:
- Business owners should still take steps to ensure work is being completed properly, especially if they are personally completing the work.
- Proper insurance is essential. In addition to business insurance, owners should carry a large personal umbrella policy.
- Contracts should be reviewed and updated. Specifically, contracts should contain clear liability limitations to protect owners from lawsuits that could put them out of business.
Next Steps
If you would like to discuss your Wisconsin business and how to protect your assets from liability, please call our office at (262) 334-3471 and ask to speak with one of our Business Law Attorneys.
Originally published: January 21, 2025
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Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action. If you need legal guidance, please contact us at 262-334-3471 or [email protected].