VIII. Llc Member Liable if She Receives a Wrongful Distribution

• Library: South Carolina Limited Liability Companies (SCBar) (2020 Ed.)

VIII. LLC Member Liable if She Receives a Wrongful Distribution

If the LLC has made distributions when it was not supposed to, those who approved the distribution and those who received it may be liable to put the money back. Look at sections 33-44-406 and 33-44-407.

In regard to the liability of a manager or member who improperly authorizes an LLC to distribute funds when it is not supposed to, Judge Waites has noted: ⁸²

The duty of care requires that a manager of a limited liability company is "limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law." S.C. Code Ann. §§ 33-44-409(c), (h)(2). Under South Carolina law, gross negligence is "the failure to exercise slight care" or "the absence of care that is necessary under the circumstances." Etheredge v. Richland School Dist. One, 341 S.C. 307, 534 S.E.2d 275, 277 (2000). "'Recklessness implies the doing of a negligent act knowingly': it is a 'conscious failure to exercise due care.'" . . .
Pursuant to S.C. Code Ann. §§ 33-44-409(c) and (h)(2), a manager of a manager-managed company or member of a member[-]managed company is liable for a violation of the duty of care if they engage in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law. This statute is written in the disjunctive, meaning that Defendant's conduct meeting any of the four types of conduct set forth above is sufficient for Defendant to be held liable. While the statute does provide for liability based upon a "knowing violation of the law," Defendant's knowledge of the law is irrelevant where, as here, liability is based upon gross negligence or recklessness.
By authorizing

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