I encounter a lot of myths about the LLC in my line of work. Obviously, right? We live in an era where anyone can write a blog on the internet, and as long as it looks legitimate, people will believe it. Unfortunately for some people, that means they get a lot of bad legal advice. I’m writing this article to dispel a few myths about the LLC that I’ve encountered quite a few times.
Myth: You Need Multiple Owners for Liability Protection
You’re not required to have more than one member in your LLC for liability protection. This myth actually stems from a series of cases that have occurred where the single owner was also using his LLC as a facade. If those owners had a second owner in the LLC, it would have helped their case. However, the number one way to maintain liability protection is to run your company as a legitimate company.
Myth: If You Own an LLC, You’re Automatically an Independent Contractor
LLCs do not automatically allow employers to skirt around labor laws. The Department of Labor and the IRS have broad discretion to classify the worker as an employee or independent contractor, despite how the relationship appears on paper. Although the filing of an LLC can be taken into account, it is only one of many factors that are considered for this analysis. Ultimately, the worker still has to act like an independent contractor for that classification to be valid.
Myth: LLCs Have Less Liability Protection Than Corporations
Limited Liability Protection is more binary than anything. You either have it or you don’t. Therefore, corporations cannot have more of it than an LLC. However, there are ways in both LLCs and corporations to have a greater chance of maintaining it. For example, if you don’t have an active role in the company, you’re more likely than not to have this limited liability shield.
That said, 99.9% of corporations and LLCs maintain their liability protection so long as they act like a legitimate company, follow the formalities, and don’t do anything stupid.
Myth: LLCs are Corporations
This is less of a myth and more of a pet peeve. Please stop saying “limited liability corporation.” That’s not correct. They’re “limited liability companies,” and they are not corporations under the law. They’re technically non-incorporated entities.
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