While Limited Liability Companies have a significant degree of flexibility over a corporation
, their very flexibility can result in great trouble for the business. In a corporation
, you are required to jump through hoops and handle a variety of bureaucracy
to insure that the business is treated as an entity completely independent of the owner
. With an LLC, if you are not careful to respect the independent interests of the business and the owner(s), you may be subject to personal liability.
One case in point in relatively recent cases is an LLC sharing the name of the business owner. For example, John Smith forms John Smith, LLC. As is quite common, businesses often drop their suffix (in this case, LLC) while conducting their day-to-day business. Unfortunately, in the case of John Smith, LLC, it appears that John Smith, and not his business, is conducting the activity. In such a scenario the courts have determined that John Smith can in fact be held personally liable. Fortunately, an easy way to get around this problem is to have the LLC file a Certificate of Assumed Name to do business as John Smith in addition to John Smith, LLC.
While this is just a particular incident dealing with only a subset of all LLC’s, the general concept still applies. More generically, any time there is an intersection of the interests of the LLC and the owners, make sure the activity is well documented. Just because nobody is peering over your shoulder to ensure that all of the forms are filed, it does not mean that your obligations have somehow been waived.