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Business Law Today (September 2019)


Limited liability companies went mainstream in 1988, began to capture the market for closely held businesses in 1997, and now have the lion’s share of that market. Since the advent of limited liability companies, a corporate-like liability shield, in addition to pass-through status under federal income tax law, has been one of two hallmarks of a limited liability company. Indeed, for many years courts have described the limited liability company as “a hybrid business entity [that] provides members with limited liability to the same extent enjoyed by corporate shareholders.”

The LLC shield should therefore be easy to understand: a limited liability company shields its members in essentially the same way as a corporation shields its shareholders. Yet courts and practitioners still occasionally misunderstand the intended purpose and proper effect of the LLC shield.

This article seeks “to make clear beyond peradventure” the proper purpose and intended effect of the LLC shield.