XI. Is a South Carolina Llc Member Personally Liable to Pay a Capital Call?

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

XI. Is a South Carolina LLC Member Personally Liable to Pay a Capital Call?

Many LLC agreements provide that the manager can demand that the members make additional capital contributions to the LLC. The scope of such sections has often been litigated by members who object to being forced to pay more money into the LLC.

As of the date of publication, the only reported state case dealing with capital call issues is Clary v. Borrell, 398 S.C. 287, 727 S.E.2d 773 (Ct. App. 2012). The opinion is primarily important in that the LLC consisted of two members and any calls required the unanimous consent of both. The defendant did not consent and thus, among other reasons, was therefore not required to make a contribution demanded by the other member.⁹⁵ In addition, the court concluded that a note that the defendant sent to the plaintiff did not obligate the defendant to make a contribution to pay the LLC's debts as it was going out of business.⁹⁶

A 2014 South Carolina bankruptcy opinion discusses, but without providing much general guidance, the possible role of a capital call.⁹⁷

Recent cases from other jurisdictions point out some important issues counsel should consider in drafting capital contribution provisions in an LLC operating agreement. In Racing Investment Fund 2000, LLC v. Clay Ward Agency, Inc., 320 S.W.3d 654 (Ky. Sup. Ct. 2010), the operating agreement authorized the manager to make capital calls for "such amounts as may be reasonably deemed advisable by the Manager from time to time in order to pay operating, administrative, or other business expenses of the Company which have been incurred, or which the Manager reasonably anticipates will be incurred, by the Company." The LLC went out of business and had failed to pay a significant insurance premium. The manager did not make a capital call. The insurance company asserted that the manager was obligated to make the call and thus pay the premium. The Supreme Court disagreed. "[The] assumption of personal liability by a member of an LLC is so antithetical to the purpose of a limited liability company that any such assumption must be stated in unequivocal terms leaving no doubt that the member or members intended to forego a principal advantage of this form of business entity."⁹⁸ Query? Did the court get this right? If nothing else, the case raises warnings as to whether the clients should include similar clauses in their operating agreements.

A capital call issued by the managing member was essentially...