It should be noted that the limited liability protection of an LLC is not absolute.  The following is from the Ohio Revised Code.  There are differences among the states.  Some states based their LLC Acts on Limited Partnerships and others on the Model LLC Act.  Each state is also free to make changes when they adopt an LLC statute. 

§ 1705.48. Personal liability for debt, obligation of liability

   Except as otherwise provided by this chapter or any other provision of the Revised Code, including, but not limited to, sections 3734.908 [3734.90.8], 5739.33, 5743.57, 5747.07, and 5753.09 of the Revised Code, all of the following apply:

   (A) The debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the limited liability company.

   (B) Neither the members of the limited liability company nor any managers of the limited liability company are personally liable to satisfy any judgment, decree, or order of a court for, or are personally liable to satisfy in any other manner, a debt, obligation, or liability of the company solely by reason of being a member or manager of the limited liability company.

   (C) Nothing in this chapter affects any personal liability of a member of a limited liability company or any manager of a limited liability company for the member's or manager's own actions or omissions.

   (D) This chapter does not affect any statutory or common law of this or another state that pertains to the relationship between an individual who renders a professional service and a recipient of that service, including, but not limited to, any contract or tort liability arising out of acts or omissions committed or omitted during the course of rendering the professional service.

LLC's are still fairly new in many states and there has not been as much case law developed on these issues.  This may be one reason why some attorneys still recomend corporations or limited liability parnerships, or limited liability limited partnerships (where available). 

A sole member LLC with no employees would likely have more issues than an LLC with employees.  The limited liability sheild may protect the member from personal liability for the negligent acts of an employee, but if it was his own negligence the protection may not be so great.   The member would not be liable solely because he is a member of the LLC, but he still may be personally liable for his own acts of negligence. 

Also, in terms of debt, it may be irrelevant because most banks will require the member of a small LLC to personally guarantee the loan.

But, the LLC form does provide a lot of flexibility in the area of tax planning.  An LLC can elect to be taxed as an S-corp as it grows and makes more sense to do so.  In the interim, an sole member LLC is disregarded for tax purposes and the member will be taxed as a sole proprietor.  A mult-member LLC will be taxed as a partnership, a flow-through entity, until it decides to make an S-corp election.

I like LLC's for small businesses.

Best,
Robert A. Franco
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