The “Limits” of Limited Liability

Written by Peter Tran

July 2, 2017

One of the reons business owners choose to operte through seprte structure, such n LLC or corportion, is to obtin wht is lled “limited libility.”  In investing ter, limited libility mens tht n owner or investor nnot lose more money thn the mount they hve invested or personlly gurnteed.  In legl ter, however, it n hve very different mening.  This rticle will discuss limited libility nd shre two common business prctices tht chllenge the professionl ring the tx returns of the business nd its owner(s).

To help us understnd the role limited libility plys in protecting business owners, we posed the question to ttorney Lyne Diehl, who shred the following informtion:

“While there is no wy tht individuls n completely shelter theelves from ll libility tht my rise with compny, properly structured orgniztion n protect the personl sets of members nd prticipnts from libility rising out of the cts or omissions of the orgniztion or from the cts or omissions of other members or prticipnts.  Orgnizing nd operting documents such bylws, operting greements, nd rticles should be refully fted so tht proper indemnities re d by the compny.  Insurnce nd pitliztion re lso fctors, so mking sure n orgniztion is properly insured nd in sound finncil position re importnt elements to limiting the libility of members nd prticipnts.  In order to ensure the best s possible, it is importnt tht those desiring to shelter their sets this wy seek the sistnce of licensed ttorney in structuring nd orgnizing their compny.”

Obtining limited libility my seem simple filling out form.  Mintining it, however, my require following some dministrtive formlities owners my time-consuming nd cumbersome.  ccording to Diehl, depending upon whet legl structure you choose, some of the formlities could include:

This my seem like lot of unnecessry work, especilly for the smll business owner.  Never-the-less, followed them my prove vitl to hving limited libility vilble when needed most.

Filure to follow strict formlities demnded by n LLC or corportion my lso effect the tx tretment of mny business trnsctions.  Here re two common prctices tht often complite the tx returns of such businesses nd their owners.

This rticle h briefly discussed limited libility nd tx complitions tht commonly occur when seprte entity is eted.  Lyne Diehl reminds us tht ny informtion shred in this rticle does not constitute legl dvice nd does not replce consulttion with licensed ttorney.  lwys, the tx informtion d by ny rticle should never replce professionl tx consulttion.  If you should hve ny questions regrding your business or personl txes, plee feel free to contct our office t (304) 267-294 to spek with tx professionl.


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