The availability of the Limited Liability Company (LLC) as a business structure has been very well received by the business community. The first appeal is based on the same reason that corporations have been utilized, namely, to limit liability of the owners of the company. The law recognizes an artificial person for purposes of allowing a fictional legal structure to exist and have the powers and purposes that would otherwise be wielded by the person individually, with attendant risks of liability. Forming a legal entity to insulate the new business owner from risks of liability is sound thinking.
However, what has been happening is that the overwhelming number of LLCs are formed with a perfunctory stroke of the pen and with inadequate knowledge of the effects, let alone the legal consequences. Frankly, the formation of the entity is the simplest and easiest part of the process in establishing a new business in the LLC structure. There are many more aspects that are much more important and are often totally ignored, leaving risks of serious consequences and missed opportunities.
How does the LLC fit into your business plan? Your estate plan? Your asset protection plan? What is to be the succession plan? If it is other than a single member LLC, what are the allocations of duties, responsibilities, profit and loss sharing, capital contributions and repayments, power and authority, when to require unanimity for decisions, buy/sell arrangements, responsibility for tax trust funds, access to bank accounts? These are just some of the issues that should be considered and are not, or are given short shrift by the do-it-yourselfers or non-lawyer, low-ball service providers.
If you have gone that route and saved money, think about applying those savings to a consultation sitdown with a business attorney who can give you guidance before it is too late and the money you thought you saved is consumed in paying for mistakes. A good business lawyer is more than willing to provide consulting service at a very reasonable rate.
Gerald N. Jacobowitz is a Senior Partner and practices Business and Estate law. He can be reached by phone at 866-303-9595 toll free or 845-764-9565 and by email.