South Dakota Amends the Limited Liability Provision of Its LLC Act

South Dakota Amends the Limited Liability Provision of Its LLC Act

In 2020 the South Dakota legislature amended its LLC act to entirely replace the provision addressing limited liability. The prior law (S.D. Code § 47-34A-303) provided:

(a) Except as otherwise provided in subsection (c), the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager.

(b) The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company.

(c) All or specified members of a limited liability company are liable in their capacity as members for all or specified debts, obligations, or liabilities of the company if:

(1)   A provision to that effect is contained in the articles of organization; and

(2)   A member so liable has consented in writing to the adoption of the provision or to be bound by the provision.

In SDIF Limited Partnership 2 v. Tentexkota, LLC, 1:17-cv-01002-CBK, 2018 WL 6493160 (D. S.D. Dec. 10, 2018), the South Dakota Supreme Court was asked whether a personal guarantee  by a member of a company debt was enforceable where are the guarantee had not been authorized in the LLC’s articles of organization. Previously I reviewed this case in a posting titled I’m Not Understanding Why This is a Question (March 18, 2019), HERE IS A LINK to that posting.  https://kentuckybusinessentitylaw.blogspot.com/2019/03/im-not-understanding-why-this-is.html. Ultimately, no decision was rendered as the case was otherwise settled. See SDIF Ltd. Partnership II v. Tentexkota, LLC, Order Rendering Certification Moot, South Dakota Supreme Court, File No. 1:17-CV 1002-CVK, # 28825 (Aug. 27, 2019). However, responding to the suggestion that the statute rendered void a member’s guarantee of an LLC obligation absent an enabling provision in the articles of organization, the statute was amended.

As amended in 2020, the South Dakota LLC Act, section 303, now provides:

(a)    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, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager. This subsection applies regardless of the dissolution of the company.

(b) The failure of a limited liability company to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a member or manager for a debt, obligation, or other liability of the company.

S.D. Code 47-34A-303 as amended by SL 2020, ch 199, § 1.