What is an LLC?
An LLC, also known as a limited liability company, is a relatively straightforward and easy business structure to form. Most states, Massachusetts included, have an online method that is easy to use. The cost, at least in Massachusetts, to form an LLC is about $500.
What does Forming an LLC do for My Business?
Choosing the structure of an LLC versus incorporation, limited partnership, partnership, or some other structure, is often undertaken because it is easy to do and provides a necessary layer of liability protection for the business owner. There are a number of items necessary when forming an LLC for your business. One of those necessary items from a liability perspective, is an operating agreement drafted by a qualified attorney. The operating agreement outlines the financial and functional rules that your business will operate by. Establishing these rules early is very helpful in guiding your business as you go along, but perhaps more importantly, may help your business avoid liability in a lawsuit or help you avoid personal liability when a lawsuit is filed that attempts to hold you (the business owner) personally liable.
Further, choosing an LLC as a corporate structure for your business may insulate you as the business owner from personal liability (where your assets could be targeted in a lawsuit). The reason that an LLC creates a virtual bubble of protection for the person behind the company is that a corporation is viewed by a court, and the law for that matter, as a separate legal entity. The idea is, that if your business forms an LLC or other corporate structure, the business itself becomes liable and the personal assets of the business owner cannot be reached in a lawsuit.
It is also important to realize that there are many exceptions to the liability protection that corporate structure provides to your business. A court may ‘pierce the corporate veil,’ a concept which allows a court to reach business owners to recover damages caused by an action of the business. Piercing the corporate veil is a complex topic and beyond the scope of this present article, but a conversation with a business or corporate attorney would be helpful in determining whether your business is at risk.
It is a good idea to spend a little time and money at the outset of forming a business under an LLC, or other structure, creating the best possible protection to limit the personal liability created by owning and operating a business.
For more information see the following articles:
“Forming an LLC…”
“Why Use a DBA for my Massachusetts business?“
“Incorporating a Business in Massachusetts...”
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The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
