Delaware Limited Liability Companies
So what exactly is the deal with Delaware limited liability
companies? Put that particular combination of words into a
search engine, even using the advanced search capability of
searching for those words in that order, brings up an amazing
number of hits? What are they and why are they popular?
Delaware limited liability companies are one of those kicky
little legal tangos that America is famous for. It's one of
those legal loopholes that allow the wealthy to get around
paying taxes that most regular people can't get out of and,
although the way they are set up allows for them to be explained
as being available to anyone. In reality, however, most people
would never need to go through the trouble of establishing
Delaware Limited liability companies.
Delaware limited liability companies are allowed to engage in
any kind of business except particularly kinds of insurance and
banking activities. By establishing itself in this way, the
business becomes a legal entity unto itself and is legally
separated from its owners. In fact, the owners of Delaware
limited liability companies aren't even called owners; they are
called "members." Isn't business in America, fun?
Why bother with this system? Well, let's say that you own a
business called Stuff and Things. Whenever you engage in any
kind of legal transaction, you as the owner are responsible. But
if you turn Stuff and Things into one of these Delaware limited
liability companies, then Stuff and Things is the name on the
contract whenever the company buys something or sells something,
engages in business practices with other companies.
Or is sued.
Basically, Delaware limited liability companies are created in
order to protect business owners from personal liability to
third parties. Oh, to be sure, there are many other benefits to
forming one, including legal-friendly advantages when it comes
to estate taxes, investment securities, property, and other
business-related interests most people never worry about it. But
the protection against personal liability is the big selling
point, make no mistake.
To put in plain language, if you are a member--or a manager, for
that matter--of one of these Delaware limited liability
companies, you instantly achieve the status of no longer being
held liable for any debts, obligations or liabilities faced by
the DLLC. This status is, in fact, the main difference between
general or limited partnerships and Delaware limited liability
companies. Typically, the partners who control general or
limited partnerships are held liable for debts and liabilities
in cases where the assets of the partnership itself cannot cover
those debts and liabilities. You can clearly see where this
could potentially be a problem.
If you're involved in one of these partnerships and you get into
financial and legal problems and the company doesn't have the
money to cover it, guess who's next on the lawsuit hit list? Now
you can also see why Delaware wants it made perfectly clear that
as long as your business is lawful and not subject to the
insurance or banking restrictions then anyone is capable of
establishing one of these Delaware limited liability companies.
You'd almost be foolish not to.