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Liability protections for members of LLPs and LLCs

When forming a business entity, liability protection for individual owners is a crucial consideration. Some entities provide greater protections than others. LLCs (limited liability companies) and LLPs (limited liability partnerships) are attractive options because they shield owners from personal liability.

Limited liability companies

LLCs are made up of owner-members. They can also have a single member. Members are only at risk to the extent of their capital contributions to the business. They aren't personally liable for business debts, nor for the acts or omissions of other members.

Limited liability partnerships

Like LLCs, LLPs shield individual partners from personal liability for the debts, acts or omissions of other partners or the business itself. In Oregon, however, not every business can form an LLP. They're limited to certain licensed professionals such as architects, accountants, physicians, attorneys, chiropractors, and related service providers.

The limits of limited liability

In both LLCs and LLPs, the protections of limited liability aren't always guaranteed. Members and partners remain personally liable for their own misconduct, such as injuring another person while performing some act for the LLP or LLC. Additionally, under a legal doctrine called "piercing the corporate veil," LLC members may be held personally liable when they fail to properly establish or maintain the company as a separate business (among other grounds).

The best way to ensure adequate protection for members or partners is to work with a knowledgeable business attorney at all stages of the organization's life cycle, from establishing the foundations at formation to observing corporate formalities and overcoming challenges along the way.

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