Limited liability generally means that the owners of the company are not responsible for the debts of the company. Meaning that if your company goes bankrupt the lenders can’t come after your house, car and the clothes on your back to get their money back.
The point, originally, was to make starting companies easier because you no longer had to worry about losing everything if your venture failed. The point is to avoid risk.
LLC provides protection to the company owners. They can only lose the investment they’ve agreed to put into the company, they’re not infinitely liable to the debts the company created beyond their investment, hence “limited liability”.
It’s also a flag to other companies who may wish to do business with them – if everything goes pear-shaped then they may not recover all money owed to them by the limited company.
This seems to be less important these days, as just about every company seems to be ‘Limited’.
People who own stock in corporations have something called limited liability. It means that if something happens to the corporation, they are not personally liable for that. So if I own stock in Google, and Google gets sued or goes bankrupt, they can only take assets from the company, not my personal assets, despite me being a part owner in the company.
An LLC offers that same protection, but for smaller businesses. If I start my own business where I’m the only owner and employee, if I have an LLC, my personal assets can’t be seized or taken if something happens to my company.
Ok, back at the dawn of time we had companies. But… if you stunk at business and the company failed you (and every other owner) lost your house. Your cars, you bank accounts, your kid’s college fund.
This made it really scary for people to start businesses and all kinds of weird things to protect them.
So then we made proper corportations. The owners don’t lose their stuff if the corp fails, but we also protect the investors by requiring a bunch of paperwork and a board of directors protecting everyone from being scammed by the people running the corp and to make sure it is all above board.
This was a big improvement, but a lot of stuff isn’t fancy enough to be worth it. You local plumber with 1 assistant might not need a 6 person board to protect his grandparents that each gave him 10k seed money.
Enter the LLC! It’s like a corporation, your liability is limited to losing the business (not your house). But, the rules for running one are a lot easier, so any random contractor or local businessman can probably get then right.
The purpose of an LLC is to separate the financial liabilities from a company to that of the owners. The point is that without this form of separation, cooperation and joint investment becomes nearly impossible.
Say you and 2 other friends have a business idea and form a company that isn’t an LLC. Everything goes well but if one of your friends makes a stupid mistake and loses a lot of money, all 3 of you are at risk of losing your personal property as well. Since you all know this from the start, none of you want to form this company. This is, broadly speaking, bad for society because investment and building businesses are key to growing wealth for all.
An LLC prevents this. Each of you now invest what you want into the company. Even if one of you makes a mistake running the business, the most you’d lose is the company itself.
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Limited liability generally means that the owners of the company are not responsible for the debts of the company. Meaning that if your company goes bankrupt the lenders can’t come after your house, car and the clothes on your back to get their money back.
The point, originally, was to make starting companies easier because you no longer had to worry about losing everything if your venture failed. The point is to avoid risk.
LLC provides protection to the company owners. They can only lose the investment they’ve agreed to put into the company, they’re not infinitely liable to the debts the company created beyond their investment, hence “limited liability”.
It’s also a flag to other companies who may wish to do business with them – if everything goes pear-shaped then they may not recover all money owed to them by the limited company.
This seems to be less important these days, as just about every company seems to be ‘Limited’.
People who own stock in corporations have something called limited liability. It means that if something happens to the corporation, they are not personally liable for that. So if I own stock in Google, and Google gets sued or goes bankrupt, they can only take assets from the company, not my personal assets, despite me being a part owner in the company.
An LLC offers that same protection, but for smaller businesses. If I start my own business where I’m the only owner and employee, if I have an LLC, my personal assets can’t be seized or taken if something happens to my company.
Ok, back at the dawn of time we had companies. But… if you stunk at business and the company failed you (and every other owner) lost your house. Your cars, you bank accounts, your kid’s college fund.
This made it really scary for people to start businesses and all kinds of weird things to protect them.
So then we made proper corportations. The owners don’t lose their stuff if the corp fails, but we also protect the investors by requiring a bunch of paperwork and a board of directors protecting everyone from being scammed by the people running the corp and to make sure it is all above board.
This was a big improvement, but a lot of stuff isn’t fancy enough to be worth it. You local plumber with 1 assistant might not need a 6 person board to protect his grandparents that each gave him 10k seed money.
Enter the LLC! It’s like a corporation, your liability is limited to losing the business (not your house). But, the rules for running one are a lot easier, so any random contractor or local businessman can probably get then right.
The purpose of an LLC is to separate the financial liabilities from a company to that of the owners. The point is that without this form of separation, cooperation and joint investment becomes nearly impossible.
Say you and 2 other friends have a business idea and form a company that isn’t an LLC. Everything goes well but if one of your friends makes a stupid mistake and loses a lot of money, all 3 of you are at risk of losing your personal property as well. Since you all know this from the start, none of you want to form this company. This is, broadly speaking, bad for society because investment and building businesses are key to growing wealth for all.
An LLC prevents this. Each of you now invest what you want into the company. Even if one of you makes a mistake running the business, the most you’d lose is the company itself.