The main benefit of a Limited Liability Company is that its members, like the shareholders of the Corporation, are generally not held liable for the Limited Liability Company's debts except under circumstances similar to the legal theory of piercing the corporate veil thereby making shareholders liable for the debts of the Corporation as its alter ego.

Limited Liability Company owners are called "Members." In most states, a Limited Liability Company may be owned either by a single member or by more than one member. If it is owned by one member, i.e., a sole proprietor, it is taxed as a sole proprietorship. If it is owned by one legal entity, such as a corporation, then, for tax purposes, the separateness of the entities is disregarded. If the Limited Liability Company is owned by more than one member it can be taxed as a partnership.

Members of a Limited Liability Company may be persons, corporations, partnerships, trusts, other Limited Liability Company's, or any other type of legal entity. Unlike "S" corporations, there are no citizenship or residency requirements for members. The Limited Liability Company can be operated by the members themselves, or by their designees known as "Managers."

Another substantial benefit of a Limited Liability Company is that, in most states, failure to hold or to observe formalities or meetings would not be a factor in deciding a member’s unless such meetings were expressly required in the Operating Agreement of the company. Operating Agreements for Limited Liability Companies are carefully drafted to exclude any requirement of formalities or meetings to minimize the member's personal liability.

Therefore, it is highly beneficial for a sole proprietor to form a Limited Liability Company so that he will no longer be held personally liable for his company's debts. Similarly, a Corporation or other legal entity might choose to form a Limited Liability Company for a specific project, thereby avoiding personal financial exposure to possible risks of the project.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.