Does a Company With an LLC Belong to the Business Owner?

By Rob Jennings J.D.

A limited liability company, or LLC, is a business entity organized under state law. LLC owners are called members, and members may or may not be managers who handle the day-to-day operations and make important decisions. Sometimes, due to the internal organization of a company and the nature of operations, the members of an LLC may not be the ones who appear to "own" the business.

LLC Ownership

An LLC is a form of business structure with a legal existence that's separate and apart from its members. LLC members are akin to shareholders in a traditional corporation; generally, they either started the company or received an interest in it from an initial organizer. They have rights to company property and company profits, and these rights are usually more particularly described in the LLC's operating agreement. LLC membership is not the same as LLC management; members may appoint one or more managers to see to the operations of the company. As such, the one who appears to be the owner of a business may be only an LLC manager. Alternatively, she may be only one of several members.

Limited Liability

An LLC provides limited liability to its members and employees. For example, if you suffer damages due to acts committed by an LLC manager or employee, you will usually have no personal claim against the individual members; if you have a claim against a member, you will usually not have one against his co-members. The LLC stands as a shield between a member and everyone else outside the company unless the claim involves acts by that member personally. The claimant's recovery is limited to the assets of the offending party and the company itself -- individual members' assets are generally not accessible in these types of lawsuits.

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Ascertaining LLC Ownership

LLC formation procedures require the organizers to file articles of organization with the secretary of state or similar office in the state where the LLC operates. The articles contain, among other things, an identification of the members and managers in the company, as well as addresses. The articles also contain the name and address of a registered agent for service of process, which can be a company or person responsible for receiving legal notices and civil process on behalf of the company. When you sue an individual and an LLC, you serve the individual personally and the LLC via its registered agent.

Piercing the Limited Liability Shield

While the LLC provides some protection to members, this is not absolute. Defects in the articles of organization could result in a court disregarding the company's separate existence, although deficient filings are usually rejected by the state before they can become a problem. Failure to timely file annual reports or failure by the members to abide by the operating agreement could also cause a loss of limited liability. Other factors, such as commingling of company and personal assets, inadequate capitalization and engaging in unauthorized business, can further endanger limited liability protection.

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What Financial Liability Does Each Member of an LLC Accrue?
 

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