Does my LLC really need a lawyer?

By Robert E. Heary*

Limited Liability Companies (LLCs) provide many legal benefits, but these benefits come with one significant trade-off. This trade-off is that non- attorney members may not represent the LLC in court. Members may not represent LLCs in court because the law considers an LLC to be a separate legal entity from the member or members who own the LLC. An LLC’s status as a separate legal entity is what provides limited liability protection to members of LLCs. This status as a separate legal entity also means only an attorney may represent an LLC in court, subject to a few exceptions. This means that a member may not file a lawsuit, answer a complaint or appear in court on behalf of an LLC unless an exception applies. This article explains when a member may be able to represent an LLC in a state court of New York, Delaware, or Pennsylvania.

TAKE NOTE: A member may never represent an LLC in Federal Court.

New York

One important exception to the attorney requirement in New York is that an LLC may defend or bring a claim in one of the Commercial Small Claims Courts of New York. A Commercial Small Claims Court allows legal entities such as corporations, partnerships, associations, and LLCs to bring claims of up to $5,000. However, these courts only allow for cash damages. Thus, a lawsuit may not be brought to compel action such as requiring a contractor to repair damage or requiring a party to perform a promised act. Any authorized member, manager, or employee of a LLC may represent an LLC in Commercial Small Claims Court. This means the LLC must make an affirmative action to designate and authorize the person who will be appearing in court on behalf of the LLC prior to appearing in court, preferably in writing. The court may inquire as to the authority a person has to appear on behalf of the LLC in commercial small claims court. If the court finds the person to not have authority, it may enter a default judgment against the LLC for failure to appear in court.

Delaware

Similar to New York, Delaware has an exception allowing an authorized member, manager, or employee to represent the LLC in a Justice of the Peace Court. However, unlike in New York’s Commercial Claims Courts, a member, manager, or employee of an LLC must complete a notarized Certificate of Representation to be able to represent the LLC before a Justice of the Peace Court in Delaware. This certificate is more formal than the requirement in New York and, once approved, allows for representation for up to one year after which one must renew it. Additionally, a Justice of the Peace Court allows for some other actions such as debt collection actions, landlord/tenant summary possession actions, and replevin actions that involve compelling the return of property. Finally, the claim limit in a Justice of the Peace Court is $15,000, higher than in New York.

Pennsylvania

Pennsylvania also has an exception for claims brought in a Pennsylvania Magisterial District Court. In Pennsylvania, similar to Delaware, the authorized member, manager, or employee must submit written authorization to the court prior to appearing. Pennsylvania also requires verification that the authorized representative has personal knowledge of the subject matter of the litigation. Once a member, manager, or employee becomes an authorized representative, they may only represent the LLC for that individual case before the Magisterial District Court. This means that for the authorized representative to appear on behalf of the LLC in a separate case, they would need to submit a separate written authorization and verification of personal knowledge to the court. Finally, the claim limit in Magisterial District Courts is $12,000.

Conclusion

New York, Delaware, and Pennsylvania all provide avenues for LLCs to pursue or defend smaller claims without the need to hire an attorney. A member representing a LLC in court is viable option and provides LLCs with the opportunity to save money on attorney costs. An LLC should still carefully consider whether or not to hire attorney though, as an attorney’s training and expertise increase the likelihood of successful recovery or defense of claims. Even if you do decide to represent your LLC or authorize another to, consider consulting an attorney. The attorney will be able to provide advice on what needs to be proved or disproved to the court, as well as how to present evidence. At the very least, have an attorney look over an answer or compliant you file. These documents are the bedrock of any lawsuit and may win or lose the case for you before you can even make it into court.

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* This post was checked for currency on July 23, 2018 and reproduced with permission by author Robert E. Heary.  Original post can be found here.

Robert Heary, at the time of this post, is a third year law student at Penn State’s Dickinson Law.  He is from Buffalo, New York and has interests in business transactional law.  He is currently serving as the Vice President of the Student Bar Association and the Executive Chair of the Moot Court Board.  A more complete bio can be found here.

Sources

Can My Corporation Represent Itself In A Lawsuit In New York State Court?

In New York Entities Must Lawyer-Up In Court

A Guide to the Commercial Claims Court

How To Start a Civil Action in the Justice of the Peace Court

https://www.pacode.com/secure/data/246/chapter200/s207.html

https://www.court.co.lancaster.pa.us/149/Magisterial-District-Courts