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Commentary: LegalZoon.com Is Not Always the Right LLC Solution

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Nowadays, it seems that almost every business and profession has an LLC after its name. That’s intended to indicate a “limited liability company.” What most people don't seem to realize is that those three letters alone don’t always mean “limited liability.”

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The idea of a limited liability company is generally good. If properly organized and maintained, limited liability companies have some of the benefits of corporations and some of the benefits of partnerships. There may be income tax advantages; company members have almost unlimited ability to make their own rules governing the activities, and their personal liability to third parties may be limited.

But to have these advantages takes much more than simply filling out forms that can be bought from LegalZoom.com and attaching LLC to a company name.  Besides filing articles of organization at the offices of the Colorado Secretary of State, all LLCs must maintain records, bank accounts and monies separate and apart from their owner-members.

They should, but are not required to, have written operating agreements that provide for company governance, manager selection, retention and compensation; meetings, voting rights; member withdrawals and other desirable provisions.

If an LLC is not properly organized and maintained, the benefits may be lost and company members may be held personally responsible for company obligations and liabilities. Other LLC advantages may be lost as well. If there is a falling out among the members, a disaster or risky and costly litigation might follow.

To properly maintain the company, it must have good records to establish that it is a real company separate from its owner(s), that it keeps its funds separate from those of its owner(s), holds meetings for which minutes are prepared and identifies itself as a limited liability company on company contracts, stationery, trucks and so on.

From the other side, those dealing with limited liability companies need be aware that if properly organized and maintained, the owners of those companies may not be personally liable for company obligations and liabilities. If the assets in their companies are few, creditors and those who have claims against them may not be able to recover anything. However, if the companies have not been properly organized and maintained, the owners may be personally responsible for their debts and liabilities through court proceedings.

The bottom line is this: simply filling out and filing LegalZoom forms for a limited liability company is not enough. It would be a waste of money to do that without getting sound legal advice from an attorney who is knowledgeable and experienced in handling limited liability company matters in the state or states where the company does business.

Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison PC.


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