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.