An L.L.C. or Limited Liability Company, which is sometimes mistakenly referred to as a “limited liability corporation” it is a combination of many different types of business structures. An L.L.C. has the advantage of a corporation in that there is limited liability that can shield its members from debts and legal judgments. An L.L.C. is similar to a sole proprietorship in that there is not a corporate tax separate from the taxes that the individual members pay. By avoiding double taxation, an L.L.C. enjoys the tax benefits of a sole proprietorship or a partnership while maintaining the asset protection of a corporation.
In many ways, an L.L.C. actually enjoys greater asset protections than a corporation. Members can potentially be held liable when formalities are not followed, which is known as “Piercing the Corporate Veil“. This follows the same process as when a corporate shareholder loses their protection and is found to be subject to liability. There are fewer formalities that are required to operate an L.L.C. than a corporation, even though the laws relating to piercing the corporate veil of an L.L.C. are almost identical, in Texas, to a corporation.
Still, there are practical reasons why it is often more important for an L.L.C. to ensure compliance with the rules and formalities than a corporation. Typically, so long as the L.L.C. and individual members do not mingle funds it is difficult to pierce the veil of liability. However, there are states that do not allow for the “L.L.C.” business form. In these states an “S corporation” can be an excellent choice.