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Overview of Corporations
Limited Liability Companies
Limited Liability Partnerships
Family Limited Partnerships
Irrevocable & Revocable Trusts
Equity Stripping

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Limiting your LLC Liability

In General, the limited liability company compares to a corporation where the managers and members have limited liability. However, some states have less protective laws regarding LLC's. A one-member limited liability company may expose the single member to the debts of the limited liability company, much as a general partner would incur liability for the debts of a limited partnership. More over, the one member/manager must have enough personal assets (set by inidividual state law) to meet the foreseeable financial responsibilities of the LLC.

The risk of a lawsuit is inherant in any business. A customer may be injured, an employee may have a car wreck in a company vehicle, an ex employee may sue for discrimination or your business may default on a financial obligation. You will want to organize your LLC in a state that insulates the LLC manager from personal liability to protect your personal wealth from these and other potential lawsuit risks.

Luckily, most states limit the manager's personal liability. They give outside protection for LLC managers and members, as the corporation protects officers, directors, and stockholders. Pending proper business formalities are followed, only LLC's assets would be exposed to its creditors and lawsuits making the LLC managers' and members' personal wealth untouchable.

Before you form a corporation, consider the LLC with your professional advisor. With an LLC you will have limited liability and obtain more protection for your ownership interest than you would as a corporate stockholder. More so, your liability is limited to your investment as members, managers, agents, and employees of an LLC would not ordinarily be personally liable for the debts, contracts, or liabilities of the LLC (and would have basically the same protection as corporate officers, directors, and stockholders). However, as with both the corporation and family limited partnership, you still retain personal liability for torts (negligence, etc.) you commit personally, as well as contracts you personally guarantee and debts where managers have statutory liability.


The best defense is a good offense.