Limited Liability In American Jurisprudence
The following article provides a brief overview of the legal concept of limited liability
and how it applies to companies in the modern global economy.The dictionary at Law.com explains the definition of limited liability as follows:
"[T]he maximum amount a person participating in a business can lose or be charged in case of claims against the company or its bankruptcy. A stockholder in a corporation can only lose his/her investment, and a limited partner can only lose his/her investment, but a general partner can be responsible for all the debts of the partnership. Parties to a contract can limit the amount each might owe the other, but cannot contract away the rights of a third party to make a claim." http://dictionary.law.com/Default.aspx?selected=1166
For those individuals or groups conducting business in one jurisdiction, or more, a company with limited liability can provide some legal insulation as well as general peace of mind. The being said, in the USA, people sometimes get confused regarding the application of limited liability concepts upon different types of legal structures. For instance, limited partnerships might exclusively provide true limited liability to so-called "limited partners" while general liability remains attached to the managing partner.
A corporation usually provides limited liability to the shareholders of the entity, but there may be some residual general liability placed upon the directors of the corporation, depending upon the jurisdiction. In the recent past a so-called "S-Corp" could be used in certain circumstances and limited liability could usually be enjoyed with such a structure. Although, some felt that both a corporation and/or an "S-Corp" required substantial investments of time and capital in an effort to maintain the legal formalities necessary to continue operation.
The Limited Liability Company is a concept that is based upon a blending of many different legal principles adopted from the jurisprudence of multiple jurisdictions. In a nutshell, the American LLC is a sort of amalgam of different kinds of corporate structures previously incorporated in different foreign and US jurisdictions.
At the close of the 20th century, the LLC became popular among American Citizens and US states began creating and enacting legislation to allow formation of LLCs (or, more properly, Limited Liability Companies). In 1977, Wyoming became the first US State to pass a true piece of LLC legislation. The Act was apparently inspired by the 1892 German GmbH Code as well as the Panamanian LLC. Subsequent to this initial adoption, other states have enacted similar legislation.
Regulations, rules, as well as legislation regarding LLCs differ depending upon jurisdiction. Thus, individuals interested in forming a United States LLC are advised to contact a licensed lawyer from the jurisdiction where business or administrative functions are likely to be conducted in order to be apprised of the rights and responsibilities arising from LLC ownership.
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