The LLC laws of every state have a specific liability limitation provision which basically states that a member or manager shall not be personally liable for business debts, obligations or liabilities merely because he is the owner.

This is a very advantageous benefit because without protection, an individual running a business is completely liable for all business related obligations. However, this law is not a license to be able to unlawful things and hide behind a veil of protection.

So, an individual cannot break the law, commit a fraud or do something unlawful and then claim that he or she was only acting on behalf of a limited liability company.

Another important factor that has caused members of an LLC to be liable is when a member conducts business but never lets the other party know that it is a legal entity and not him personally that is engaging in business activity. It is important to always let the world know that it is an LLC operating the business. You are an agent working on behalf of the LLC business.

This is one example of where members may be held personally liable if actually sued. There are a string of other situations where the protection veil of a limited liability company can be pierced. If you would like to learn more about these other situations and what you can do to avoid them, you should read The Six Step LLC Formula to LLC Protection- an eBook offered by The LLC Expert, LLC.

The LLC v. S Corporation dilemma is one that many new business owners come across when choosing a business entity.

An S Corporation Is a Tax Status

It is important to first understand that an S corporation is not a legal entity in the same way that as an LLC, a corporation or a limited partnership entity.  An S corporation begins as a general corporation under state law.  The “S” is really a tax characteristic under the Internal Revenue Code.  So when you are looking at your state laws for different entity requirements, you will not find the S corporation in the corporations and legal entity statutes.

What this translates to is that the only reason to be an S corporation is for tax purposes.  An S corporation is a corporation under state business organization law and subject to the same formalities and requirements as a corporation. The corporation generally has more legal mandates and a less flexible structure when it comes to business operations.

An S Corproation Has Limitations and Conditions

Also, from a tax perspective, the Internal Revenue Service imposes a laundry list of requirements and limitations for an S corporation to meet in order to qualify for a single layer of taxation.  On the other hand, the IRS automatically qualifies a limited liability company for such single layer of taxation without any requirements of an election or additional restrictions and limitations.

These restrictions and limitations must continually be adhered to and any deviation, even if it is accidental, will result in loss of S status.  A loss of S status usually means triggered tax obligations and sometimes penalties and fees. One benefit of the LLC is that you, as a busy business owner, do not have to worry about these.  It is one less set of legal compliance requirements you need to keep up with as your business evolves.

While many of these restrictions and limitations may not seem to onerous when starting a business many businesses have later found them to negatively affect their ability to grow or take on financing in later stages. It is sometimes difficult later to unwind an S corporation status if it is needed for business reasons.

An S Corporation Is Subject to Same Formalities and Requirements as a General Corporation

A corporation is simply not as flexible as an LLC when it comes to operations and ownership matters.  The corporation statutes structure a corporation with a required board of directors and standard stock ownership.  The LLC can alter the legal default structure of an LLC by agreeing to different arrangements in an LLC Operating Agreement.

From a non-tax perspective, the LLC clearly provides a lot more simplicity and flexibility which is important to a small business.

An LLC Can Choose S Corporation As Well for Tax Purposes

From a tax perspective, there is a difference between a default LLC tax structure (which is known as a pass through) and an S corporation tax structure.  Both offer a single layer of taxation but there are some technical and sometimes complex differences when it comes to specific tax matters like the ability to take losses, the ability to allocate tax items to owners, and self employment taxes.

Now, having said this, one thing that many do not know. .  even some accountants do not know. .  is that an LLC can choose an S corporation tax structure if it desires.  It requires meeting the same laundry list of requirements and making an election.  But bottom line here is that a limited liability company can have all the state law advantages of an LLC but be taxed exactly like an S corporation if this is more suitable.

The S corporation does not have this flexibility in choosing tax structure.  The LLC is a newer entity in which both state lawmakers and the federal government (Internal Revenue Service) made it a goal to be most suitable for a small business owner.

One of the many reasons that S corporations are still popular is because accountants are used to using S corporations as they have been around longer and so they advise their clients to use them.  Many of these professionals have not kept up to date on the tax rules applicable to the limited liability company.  Now, in some situations using corporation that has elected S corporation status may be preferred but make sure that the person advising you is experienced in both types of legal entities when conducting this analysis for your situation.

No.  A DBA (which is short for doing business as) is a filing made at either your local or state level which registers a name for you to conduct business under.  If a person files for a DBA and operates a business under that DBA, this is setting up a sole proprietorship structure.

The DBA is merely a name registration.  It is not a separate legal entity and it does not offer any liability protection whatsoever.  All it does is make it permissible to use such name in connection with your business.

The major reason for starting an LLC is to protect yourself and your personal assets from business related problems and liability.  When you form one, you will need to file an LLC name for your business.  This name must be available in your state of formation for use as an LLC name.

Now, some businesses want to use another name or several names when running their business.  An LLC can file and register for a DBA if it desires to use other names.

In summary, a DBA is totally independent and unrelated to the use of an asset protection entity like a limited liability company for business. It does not offer the liability protection, tax flexibility, or professional and official image that the use of a separately organized entity will give you.

Generally, when this question is asked it is two fold.  One, how are previously purchased equipment or previously incurred debt transferred to a limited liability company when an LLC is created later for a business.

Second, is it possible to not be personally liable for that debt after the transfer?

Question #1:  Yes, you can transfer any assets or debt to your LLC. You transfer assets with a document called a Bill of Sale and you assign debt with an assignment of the debt contract and obligation.  The LLC needs to agree to undertake the debt obligation by having its members formally approve this transaction.  The approval should be documented with a written resolution or consent.

Question #2: No.  Once you personally agree to an obligation, you cannot later get rid of that personal obligation by transferring he obligation to an LLC.  You remain liable.  The only way to change this is to get the other party (e.g., the lender or vendor) to agree to take you off as a liable party. In most cases, that party will never agree to this- it just does not make business sense.

The best approach is to create an LLC early and have your limited liability company be the contracting party or the borrowing entity from the beginning.  Please note that many banks will not lend money to a brand new LLC with no operating or credit history so you may end up being asked to personally guarantee the loan in any event.  Banks are conservative.  It is still worth your LLC being the borrowing entity (Even with the guarantee) as this is how you begin to establish credit for your LLC business.

Learn more about the limited liability company at The LLC Expert.

There are many benefits to you when forming an LLC for your business. First and foremost is limited liability protection. By running your business in a separate entity such as a limited liability company, you are not personally liable for any liabilities, problems and lawsuits that arise due to your business activity. This is a huge benefit.

Many non-LLC owners are shocked every year when they get personally sued for business problems and find that they need to sell their personal assets (like their home, car, other property) or lose their personal savings to cover any resulting liabilities.

Other benefits of forming an LLC include: tax benefits and choices, a more professional and trustworthy business image, lower risk of tax audit, a simple to operate business vehicle, a legal entity that makes it easy to take in investors or other members.

If you are interested, The LLC Expert offers an excellent formation and education service for forming an LLC: The LLC Expert Formation and Liability Protection Package.

There is little doubt that a limited liability company is an ideal vehicle for the new business and the small business.  This perfect fit does cause business owners to wonder if a business will easily outgrow the LLC as a legal entity for their businesses if the business grows and becomes a medium sized or even a large business.

The LLC is a great choice for medium and large businesses as well.  Regardless of size, the limited liability company offers businesses the same benefits and advantages including the most tax choices.

FIDELITY INVESTMENTS IS A LIMITED LIABILITY COMPANY

In 2007, Fidelity Investments, one of the largest investment brokerage businesses in the US , converted itself into a limited liability company. Fidelity has over 3,000 employees and over a billion in profits each year.

According to reports, they did so in order to significantly reduce tax burdens and pass higher returns on to ownership.   A senior executive stated that it was the most advantageous choice of legal entity for the business.

A LIMITED LIABILITY COMPANY BUSINESS HAS NO GROWTH LIMITATIONS

The LLC laws do not limit how many members can be members of a limited liability company.  There are no limits on how many businesses a limited liability company can engage in.  The limited liability company has enough flexibility to have a simple governance structure for a single member LLC or an incredibly complex governance structure needed when there are layers of investors and owners and layers of management and required committees.

I have worked with fast growing LLC businesses that have millions in revenue and multiple offices worldwide.

THE LLC IS NOT RIGHT FOR A COMPANY THAT WANTS TO GO PUBLIC

Now, Fidelity is a private company.  If a business has serious desires to go public, which means to have an initial public offering and sells its ownership in the public markets, then a corporation is the required choice as LLC interests currently are not available to be publicly traded.