The term “limited liability” and its relative term “LLC”, or Limited Liability Company, has been tossed around for a long time. Chances are you may have seen it on a sign of business while walking down the street. However, many sellers, especially newer ones, are in the dark as to what this term actually means. Prestige Auditors believes in enlightening clients regarding similar topics, and this blog will specifically discuss Limited Liability, its origins, and its importance in setting up an eCommerce business. Let’s simplify corporate law!

 

What is Limited Liability?

In short, limited liability is a legal status. Under this status, the financial liability of the owner or a person does not exceed the fixed total of that person’s investment in a company or partnership. Let’s say that hypothetically, something goes wrong in a company and a claimant intends to sue it. If the company has limited liability status, better known as an LLC, then it is the company itself that will get sued, not the people who own it or have invested in it. Anyone who holds shares in an LLC will not bear the responsibility of the company’s debit, other than amounts they have not paid on their shares, provided that such an amount exists.

Where Does Limited Liability Come From?

We do not want to bore you to death by lecturing you on the history of corporate law, but if you are interested in knowing where this legal status comes from, you’d have to travel back 600 years. It all started with English law. Back then, limited liability laws did not actually exist. Instead, limited liability was given to trade guilds and monasteries. Limited liability officially became law in 1811, in New York.

Fast forward to 1855. The Limited Liability Act passed in the UK Parliament. Companies with more than 25 shareholders were allowed limited liability.  The minimum number of shareholders required to get limited liability reduced to 7 by 1856 under the Companies Act. A lot of changes have since occurred in the law globally, but the core has stayed the same, bringing us to our next topic:

From Theory to Practice

If limited liability on its own is a legal status, then a Limited Liability Company (LLC) is its manifestation. LLC is a type of business entity, where the owners are not legally responsible for the company’s debts or liabilities. One or more people, LLC “members”, can govern these types of companies.

Forming an LLC is especially beneficial for starting a small eCommerce business. Many eCommerce sellers often start off on the wrong foot, breaking regulations they are not even aware of. This leaves them at risk of getting sued by larger companies, and an LLC is a good shield against keeping the owner or shareholders of small businesses safe even if their company is heavily sued. You might be able to afford to lose your business, but losing your life is certainly out of the question.

Prestige Auditors is here to help you keep both your business and yourself safe by helping you form your business correctly from the ground up. In future blogs, we will talk about other variants of business entities that you can choose from. In the end, the choice is yours. After you make it, you can leave the rest of it to us, and we will help get you set up with our tailored eCommerce business solutions.

 

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