What is a Limited Liability Company (LLC)?
A limited liability company (“LLC”) is a form of business organization that combines the limited liability benefits of a corporation with the management and tax structures of a partnership. The term “limited liability” simply means that the members of an LLC generally cannot be held personally liable for the debts and actions of the business.
This means that the personal assets of the members of the LLC are generally protected from any creditor or legal claims made against the LLC. However, even limited liability does not shield owners from their own negligence. This means that LLC members who act negligently may still face liability for their actions.
Who Should Form a Limited Liability Company?
A major benefit of forming an LLC is the ability to avoid the double tax applied to corporations. As such, business owners and organizations concerned with potential lawsuits or debts that could arise should consider forming an LLC. Forming your business as an LLC can provide security for your personal assets if the business struggles financially or is involved in lawsuits.
Keep in mind that not all businesses can be formed as an LLC. For example, businesses that operate in certain industries such as banking, trust and insurance cannot be organized as an LLC. Some states may also prohibit more industries from forming as an LLC.
As such, if you are considering forming an LLC you must check with the Secretary of State or consult a business attorney to determine if that is possible under your state’s laws.