Limited Liability Company (LLC)
Like a corporation, a limited liability company (LLC) offers protection from personal liability and acts as an entity separate from its owners. LLCs combine the characteristics of a corporation and a partnership or sole proprietorship as they utilize features of limited liability and flow through taxation. Limited liability company owners usually receive protection from personal liability. If the business cannot pay a lender for example, that lender cannot come after the owner’s personal possessions. LLC assets are used to pay debts and owners only lose money they invested in the company. While a limited liability company may be difficult to establish, it is usually easier to run than a corporation.
Many owners enjoy the concept of limited personal liability, but should know there are exceptions to when owners can be held personally liable. Like limited liability, corporations usually have the same exceptions. It is important to know if forming an LLC offers the right protection for you. Here are some examples of situations where you may be held personally liable:
- If you personally and directly injure someone
- If you personally guarantee a bank loan or a business debt to which LLC defaults
- If you intentionally do something fraudulent, illegal, or reckless that causes harm to the company or to someone else
- If you fail to deposit taxes withheld from employees’ wages
- If you treat the LLC as an extension of his or her personal affairs, rather than as a separate legal entity
Like a partnership or sole proprietorship, some LLC’s may not be treated for legal and tax purposes to be separate from its owners. The IRS calls this a “pass-through entity”. This means that the company is not subject to income tax. Income goes through the business to the members of the LLC, and these members report profits and losses on their income tax returns.
To form an LLC, you must file Articles of Organization with your state government. You will need to detail information about your LLC; including the name, address, and contact information of the registered agent who receives legal papers. After filing articles of organization, it is imperative that you write an LLC operating agreement, which does not need filed with the state. This is an important document, as it lays out each member’s rights and responsibilities, interests in the LLC, and share of profits.
Do not enter into a limited liability company without the legal agreements to protect all involved. Contact our Business Lawyers at Luebeck, Hammar, McCarty & Goldwarg in Bozeman, MT for a legal consultation and expertise regarding your LLC.
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