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.
