Also known as: limited-liability · LLP · LLC liability shield
Written by attorneys — see sources below.
A legal protection under which owners of a business entity are not personally liable for the entity's debts or obligations beyond the amount of their investment in the entity. The entity itself bears responsibility for its own liabilities as a separate legal person. Creditors of the entity therefore cannot reach the personal assets of the owners to satisfy entity obligations.
Luke Latham is a partner in Legacy Motors, a limited liability partnership. The firm incurs a large obligation to a parts supplier while operating as an LLP. Luke faces no personal liability for that obligation solely because of his status as a partner.
Layla Lane and Levi Lowe form Linden Logistics as an LLC to run a delivery service. A customer sues the company for breach of contract and seeks to reach the members' personal bank accounts. The members' personal assets remain protected because the LLC alone bears the liability.
Lila Lin organizes Lakewood Manufacturing as a limited partnership that is not an LLLP. The name must include LP to alert creditors that only limited partners enjoy protection from personal liability for firm debts. General partners remain exposed under the default rules.
Lorenzo Lugo and Latoya Lane wind up their LLC after paying all creditors. The surplus first returns unreturned contributions to members before any pro-rata distribution. Limited liability ensures members lose only their invested amounts and face no further personal exposure.
Legacy Motors registers as a limited liability limited partnership. Its name must contain LLLP to signal that all partners receive limited liability protection. Creditors therefore know they cannot pursue partners personally for partnership obligations.
Loyal Insurance, a corporation, uses its resources to fund political speech. Its owners enjoy limited liability, which distinguishes the entity from natural persons and permits the corporation to amass and deploy capital without exposing shareholders to personal risk.
Citizens United is a nonprofit corporation with an annual budget of about $12 million. Most of its funds come from donations by individuals, though it accepts a small portion from for-profit corporations. In January 2008, Citizens United released a 90-minute documentary film entitled Hillary: The Movie. The film mentions Senator Hillary Clinton by name and depicts interviews with political commentators, most of them critical of her. Hillary was released in theaters and on DVD, but Citizens United wanted to increase distribution by making the film available through video-on-demand. In December 2007, a cable company offered to make Hillary available on a video-on-demand channel called Elections '08 for a payment of $1.2 million. The proposal was to make the film available to viewers free of charge. To promote the video-on-demand offering, Citizens United produced two 10-second ads and one 30-second ad. Each ad includes a short statement about Senator Clinton followed by the name of the movie and the movie's website address. Citizens United desired to promote the offering by running the advertisements on broadcast and cable television within 30 days of primary elections. Before the Bipartisan Campaign Reform Act of 2002, federal law prohibited corporations from using general treasury funds to make independent expenditures that expressly advocate the election or defeat of a candidate in connection with certain federal elections. BCRA §203 amended the law to prohibit any electioneering communication. An electioneering communication is any broadcast, cable, or satellite communication that refers to a clearly identified candidate for federal office and is made within 30 days of a primary or 60 days of a general election when publicly distributed so that it can be received by 50,000 or more persons in a relevant state. Concerned about possible civil and criminal penalties for violating 2 U.S.C. §441b, Citizens United filed suit in the United States District Court for the District of Columbia in December 2007. It sought declaratory and injunctive relief, arguing that §441b is unconstitutional as applied to Hillary and that BCRA's disclaimer, disclosure, and reporting requirements are unconstitutional as applied to Hillary and the ads. The District Court denied Citizens United's motion for a preliminary injunction and granted the Federal Election Commission's motion for summary judgment. The Supreme Court noted probable jurisdiction. The case was reargued after the Court requested supplemental briefs addressing whether Austin v. Michigan Chamber of Commerce and the relevant portion of McConnell v. Federal Election Commission should be overruled.
View caseIn a general partnership all partners are jointly and severally liable for partnership debts. Limited liability shields owners of corporations, LLCs, LLPs, and LLLPs so that creditors cannot reach personal assets beyond the owners' investment.
Supporting sources
Yes. Limited liability continues to protect members from personal liability for entity obligations even after dissolution and during winding up. Members lose only their unreturned contributions.
Supporting sources
Courts may pierce the veil only in exceptional cases of abuse such as undercapitalization or fraud. Absent such circumstances, limited liability prevents creditors from reaching owners' personal assets.
The LLLP designation notifies third parties that every partner enjoys limited liability. Without it, the entity risks being treated as an ordinary limited partnership in which general partners remain personally liable.
Supporting sources
…554 U. S. , . Distinguishing wealthy individuals from corporations based on the latter’s special advantages of, e.g., limited liability, does not suffice to allow laws prohibiting speech. It is irrelevant for First Amendment purposes that corporate funds may “have little or no correlation to the public’s support for the…