A limited liability corporation (LLC) is an entity organized under Section 7001 of the Internal Revenue Code as a business entity to offer limited liability to its investors. The sole purpose of an LLC is to limit the personal liability of its directors and officers. In general, an LLC will limit the liability of its owner or members by electing members to a board of directors and setting up policies and procedures for maintaining limited liability. However, in some states, there may be even more extensive limitations on the liability of owners or members.
Limited liability is necessary because in some states, a corporation is treated as an entirely separate entity from its owners, and in that case, the owners cannot be held personally liable for the company's debts. As a result, if an LLC loses a lawsuit, the personal assets of its directors and shareholders usually do not have to be recovered. This can be very important in some small businesses where cash is needed to run the business. In fact, the inability of a small business to pay its debts when it is sued by another business can often lead to the dissolution of that small business.
To protect its members and creditors, a limited liability company must employ professional liability insurance. That means the insurance policy can cover any damage or loss to a member or customer of the company. Liability insurance can also cover lawsuits directed against the company, its owners and directors and their personal assets. Liability is limited to physical damage and slander only. It does not, however, cover errors and omissions or failures of service.
Some states allow their residents to purchase no fault or limited liability insurance as a form of self-insurance. In these states, people are allowed to carry a policy in case they are injured or fall ill while at home or while working for the company. Many companies offer full coverage insurance policies that can cover any accidents, illnesses, lost wages, pain and suffering, property damage and all other associated losses up to the amount of coverage provided. Some states limit the maximum amounts of coverage, which can vary from state to state, and some do not have any limits at all. Full coverage insurance usually has a deductible, which is the amount that the insured pays himself/herself prior to the insurance company paying out on a claim.
Many small business insurance policies restrict the amount of times a member or employee can be personally liable for an accident. Many limited liability insurance policies set limits on the number of times an employee or member can be responsible for damages. These limits may apply to all types of accidents, including accidents in the work place, as well as incidents that occur off the work place. Other limits may apply only to particular business operations, or to specific locations within a business.
Some states require that a logistics company keep limited liability insurance. The minimum number of employees required varies by state. New York requires that a logistics company to keep no more than two million pounds of insurance. Pennsylvania has a limit of one million pounds of liability coverage, and every additional pound increases the liability limit by ten percent. Illinois requires that the logistics company maintain no less than five million pounds of insurance coverage.
Some states, such as Maryland, allow limited liability corporations. In general, the rules regarding limited liability companies are more complex in the United States than in other countries. A U.S. limited liability corporation can be run or organized in the same way as any other business. It need only meet the state requirements if it is organized as a corporation. Even so, some jurisdictions, such as the Delaware law, provide that a limited liability corporation can be operated even without being organized as a corporation.
A logistics company could be both a corporation or an unincorporated body. A United States federal court has held that a logistics company may be both a corporation or an unincorporated body, depending upon the circumstances of a particular case. A company with a majority ownership (at least fifty percent) could be considered an unincorporated body. Similarly, a logistics company formed as a limited liability partnership may be treated as a corporation. However, if the partnership is organized as a partnership and if only the partners own a percentage (less than fifty percent) of the partnership's stock, the logistics company may still be considered a corporation. For tax purposes, a logistics company may be treated as an unincorporated partnership, and its taxation as a corporation is left to the discretion of the entrepreneur.