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  • Curington Law, LLC

A Limited Liability Company Explained




Liability is something that an individual can be held legally responsible for. In order words, a liability is a risk. A limited liability company (LLC) limits the amount of risk that an individual, as the LLC owner, is exposed to. When an owner creates an LLC, they have created a legal structure that helps protect them from potential lawsuits.


As a prime example, if an owner is not set up as an LLC and they open a physical location, and a customer or patron hurts themself on the owner's property, that customer could sue the property owner personally. In other words, the lawsuit could pursue the business owner's personal assets, not business assets. However, if the owner creates an LLC and that same injuries party sues the owner, they could only pursue the business's assets.


Of course, there are exceptions where people can still sue the owner personally even if the owner has formed an LLC. Mainly if the owner engages in some sort of intentional fraud. But, for things like negligence, breach of contract, or those “slip and fall” type of injuries, an LLC will provide some level of legal protection so that the owner's liabilities are limited to their business's assets and not the owner's personal assets.


Types of LLCs


SINGLE-MEMBER VS. MULTI-MEMBER LLC


The first distinction between different types of LLCs is whether the LLC is a single-member LLC or a multi-member LLC.


A member is considered an owner of the LLC. So, a single-member LLC means that there is one owner. A multi-member LLC means that there are multiple owners. The number of people the company employs has nothing to do with this distinction. The business can have 100 employees, and as long as there is only one owner, it is still a single-member LLC. Conversely, a company could have zero employees and multiple members and could be a multi-member LLC.


It is important to note that LLCs can be owned by individuals or by other LLCs. So, if an individual has multiple LLCs owning a single LLC, that would be considered a multi-member LLC. If just a single LLC owns another LLC, that is still a single-member LLC.


MEMBER-MANAGED VS. MANAGER MANAGED LLC


Another distinction between different types of LLCs is member-managed vs. manager-managed. When registering for an LLC, an owner will need to declare whether the LLC is a member-managed LLC or a manager-managed LLC. A member-managed LLC is where the actual member of the LLC (the owner of the LLC), is at the forefront of the business and manages the operations of that LLC. A manager-managed LLC is when the member (or members) of an LLC delegate the task of managing that LLC to another person who is a non-member.

HOLDING/UMBRELLA VS. OPERATING LLC


Some companies exist only to hold assets, like real estate, or to act as an umbrella holding company for other subsidiary companies. Those are considering holding companies. The reason that holding companies exist is to create additional layers of protection from liability. An operating LLC is a simple structure where the LLC exists to run a business (as opposed to existing to own assets).


For more information and help with Limited Liability Companies and formation, contact Curington Law, LLC at 312 803-1755 or online.

Sources:

  • https://lydagroup.com/blog/llc/

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