What is an LLC?
A limited liability company (LLC) is a business structure that is a hybrid of corporations and partnerships. It combines the liability protection of corporations with the tax benefits of partnerships. LLCs protect personal assets from business debts and lawsuits, and they give owners a chance to choose their tax status. However, LLCs can be expensive to form and maintain, with state filing fees ranging from $40 to $500.
Limitations of LLC Protection
What LLCs Do Not Shield Against
While LLCs offer significant protection for personal assets, there are limitations to this protection. An LLC does not protect members from wrongful termination lawsuits or other employment-related claims. Additionally, members can still be legally responsible for damages stemming from their business activities.
Personal Liability Exposure in LLCs
Operating as an LLC does provide limited liability protection. This shelters personal assets from the actions of other LLC members to an extent. However, your personal assets might still become vulnerable in the following two scenarios:
- If you commit wrongdoing in the course of business
- If the LLC is sued for actions by its members or employees
Understanding these exceptions is crucial for anyone considering forming an LLC or already operating as one.