Outside of certain situations, very often an LLC is suitable if not the best structure for most businesses today. My name is Alexis Gonzalez. I’m the founding member of Gonzalez Law. I focus primarily on business law, helping business owners and their families with limited liability protection.
Does Your LLC Have Limited Liability Protection?
You would be amazed how many times I sit down with clients who set up their own LLC. Either by themselves or their accountant did it for them. And when they bring me all their documents, or lack thereof, if they don’t have anything, and we go through them: it’s one of two things. Either they don’t have the proper documents in place or they never executed it. So, if someone sues them, they don’t have the liability protection that they think they have. And if the IRS audits them, they’re not going to have the tax advantages that they thought they had.
Although contingent upon specific facts, very often an LLC is either suitable, if not the best structure for businesses today. The main advantage offered by limited liability companies is flexibility. They can operate with fewer formalities than a corporation, thereby enjoying greater flexibility in the management and business dealings. And you can elect to be taxed if you meet the requirements of a sole proprietorship, partnership, or corporation.
What This Means for LLC Members
In order to enjoy the limited liability protection, the law requires members to establish, operate, and maintain the LLC as a separate entity. Although the law does not require LLCs to maintain as many corporate formalities as corporations, the courts can still pierce the corporate veil and hold the members of the LLC liable for their debts, obligations, and even the torts of the LLC.
It is becoming apparent that the courts are becoming reluctant to recognize the LLC as a separate entity that offers limited liability protection to its members when the members themselves do not operate the LLC as a separate entity. Piercing of the veil, or piercing the corporate veil, is when the courts hold the members of the LLC liable. For the debts, obligations, even the torts of the LLC. Meaning that the creditors can go after the owner’s home, properties, bank accounts, investments, and other assets to satisfy the company’s debt.
What I would suggest to business owners who are not sure that they are meeting the requirements to avail themselves of the limited liability protection is to contact me to set up a consultation. I will let them know what I need to review. And I can send them an audit to help them in collecting the appropriate information.
Great blog!