What Is a Limited Liability Company (LLC)?A limited liability company ("LLC") is defined as a business organization that shares the limited liability benefits of a corporation but the management and tax freedom of a partnership. LLCs are legal entities created only under state law. Limited liability companies grew in popularity during the 1980s in response to demand for an organization that gave limited liability to its members but avoided the double tax regime applied to corporations. By 1991, every state of the Union had passed a statute allowing the creation of LLCs.
What Does It Mean To Have Limited Liability?Limited liability simply means that everybody associated with the company is not liable for damages beyond their initial investment and cannot be held vicariously liable. In easier terms, a person who puts money in an LLC only risks losing the amount of their investment and will not have to pay any more if the company is still in debt. It is a way of limiting the risk of investing in a company.
Be warned that even limited liability does not shield owners from their negligence liability.
How Is a Limited Liability Company Different From a Limited Partnership?The difference is control. In a limited partnership, the partner has limited liability unless they act in control of the company's actions, in which case they lose their limited liability. In an LLC, liability is limited regardless of participation in control.
Do I Need an Attorney Experienced with LLCs?Starting a business is a very difficult but potentially lucrative option. To understand the distinctions and rights that attach to your business and its organization, it is a good idea to discuss your ideas with an attorney. A lawyer experienced with limited liability companies can help you incorporate your LLC and explain the tax and organizational benefits of the limited liability structure. |
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