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Legal foundations in business and the discovery of limited liability company - Assignment Example

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Legal foundations in business and the discovery of Limited Liability Company University/College Lecturer Date Introduction ‘The limited Liability Corporation is the greatest single discovery in modern time. Even steam and electricity are less important than the limited liability company’, (Bernard 1998, p.473)…
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Legal foundations in business and the discovery of limited liability company
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Download file to see previous pages As such, the concept of LLC has since prompted several states and countries to adopt legal provisions and control statues that would pave way for active business investments in otherwise risky ventures that individuals could not ordinarily undertake single handed. The main focus of this discovery revolves around the ideals of protection accorded to members of the LLC in their corporate investment endeavours, especially with borrowed capital. With that in mind, this paper examines the significance of the aforesaid quote of Nicholas Murray with reference to relevant case law and legislative provisions. In particular, the paper looks at how private law exerts legal control on business entities. Besides, the essay examines a variety of legal structures that LLCs adopt in reality to support their business interest in pursuit of profitable ventures that are typically risky and capital intensive. The paper concludes with an epigrammatic analysis of the extent of liability that the LLC or its members may owe indirect investors like banks, other creditors and customers and victims of tortuous acts of the LLC members. Limited Liability Company According to Grossman (1995, p.63), a limited liability company commonly denoted as LLC refers to a legally incorporated business entity with an infinite number of members enjoying protection of liability to the extent of their investment contribution in the business. Technically, an LLC is not a corporate entity per se but a type of unincorporated association that enjoys limited liability. In practice and legal context, LLC has a definite lifetime upon which the business must dissolve on expiry of the stipulated period (Dmitry & Plekhanov 2008, p.18). In terms of structural formation, a limited liability company may also be defined as a business entity that replicates certain features of a company and partnership. As a corporation, the LLC is characterised by limited liability. Whereas the business is more flexible than a typical corporation, a limited liability company possess that the partnership component of pass-through income taxation modalities as reiterated by Hannigan (2003, p.79). Although all its members enjoy limited liability, an individual member of a limited liability company may personally be held responsible for tortuous acts committed by him or by agents specifically under his direct supervision (Lobban 1996, p.401). Of course, this provision is only applicable for torts committed in the normal course of duty and for activities directly related to the business of the LLC. If follows therefore that the law shall protect other members from the liabilities of the responsible individual member or members, whichever is applicable. In even that significant liability has arisen in lieu of the LLC activities, the entity may be subjected to the theory of piercing the corporate veil (Keatinge et al. 1992, p.377). This is however less common when dealing with LLC as opposed to classic corporations due to the fact that limited liability companies do not have several complex formalities to observe. Nevertheless, an LLC may not circumvent the doctrine of piercing the corporate veil when its members had initially commingled their capital in the risky venture for which liability has risen (Halpern et al. 1980, p.122). Depending on the context of its operating agreement, the charging order mechanism ...Download file to see next pagesRead More
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