Legal Authority

• An LLC is a hybrid legal entity type. It benefits from the limited liability shield of a corporation while enjoying the flexible management structure of a partnership. The owners form the company under a business statute of a home state. State statutes differ but are mostly all modeled after the national Uniform Limited Liability Company Act. The ULLCA addresses the standard provisions regarding owner liability contained in all state statutes under Article 3, Section 303, Liability of Members and Managers. This section states, "A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager."
  
  

Limited Liability

• The phrase "limited liability" refers to the prohibition against personally suing an owner of an LLC, properly called a member, when he acts on behalf of the company. This is one of the primary benefits to owners operating a business as an LLC. Limited liability is traditionally a corporation concept, designed to protect shareholders, but it has been applied in much the same way to owners of LLCs. Limited liability creates a shield, or veil, between company affairs and the business owner personally. Under this paradigm, the LLC is an independent legal entity that is responsible for its own actions, even though its owners functionally operate the entity. If someone wants to sue based on actions of the LLC, the plaintiff's lawsuit can only pursue the entity and limit damages to the assets of the company.
  
  

Lawsuit Procedure

• It is common in lawsuits to name in the complaint any party that might share responsibility for wrongful actions. Hence, an LLC member may likely find himself named as a defendant alongside the company in any civil action that concerns the business. This is because the plaintiff often does not know at the outset of the suit if there are any legal exceptions to the limited liability afforded to LLC members. The member would have to assert his defense of limited liability to the court for removal from the complaint.
  
  

Exceptions

• Limited liability protection is not absolute. Circumstances exist when a court will disregard the business entity and hold owners personally responsible for wrongful actions. As an initial matter, a plaintiff can personally sue an LLC owner for any misconduct that falls outside of normal business duties, such as assaulting an employee. Further, the court can disregard the business entity when the owners use the business to perpetrate fraud or indiscriminately pull money from the business for personal use without first paying creditors. The court can also hold owners personally liable if they do not follow certain provisions of the state LLC law, such as maintaining a current business registration with the state, operating under a business name that is not the company's legal name, operating a regulated business without a license, or not liquidating the business in the manner required by law.