Special Guest Post: What Does the “Limited Liability” Mean in Your LLC?

johnJohn T. Carter is a Partner with Witzke Berry Carter & Wander, PLLC in Bloomfield Hills, MI. Mr. Carter leads the firm’s Business Law and Commercial Transactions group and he has over 18 years of experience working with Michigan based organizations that service the health care, technology and professional services sectors. Follow John T. Carter on Twitter @johntcarterConnect with John on LinkedIn.

You’ve probably heard someone say that an LLC is the best way to organize your new Michigan-based business. For many companies, that is true. But before you jump to sign the paperwork, make sure you know what a Limited Liability Corporation actually is.

An LLC isn’t a license to forget safety measures. It doesn’t protect your company from lawsuits. What it does is protect the owners of the corporation from being liable for the legal missteps of their partners or employees.

For example, imagine a laboratory equipment company offers installation of its products. The owners send their employee to a client with a device, but while on site the employee breaks a window. If the owners are in a partnership, the injured client can sue the employee, the company, and each of the owners for the cost of the window. But under an LLC, liability ends at the company. The employee and the company still can be sued, but the owners’ private assets are safe.

What if the installation had been done by an owner? That owner can be sued personally, but her business partners are still protected. In legal terms, an LLC doesn’t protect against acts of personal negligence, but it keeps other members from being held “vicariously liable” for each other’s actions.

There is more protection in breach of contract suits. As long as the company has met its requirements as an LLC, the business entity, and not its members, enters into business contracts. So when the laboratory equipment company fails to deliver its equipment on time the client can only sue the company, not the owners for that breach of contract.

An LLC protects the owners of a company from being personally accountable for business obligations of the company or for the negligence of its employees. It is not a complete shield against lawsuits, but it can cover the members against most of the claims that might be filed against the company.

To find out if an LLC is the right protection for your Michigan start-up, call attorney John Carter at 248-481-4000 for a free consultation.