Just like Corporations, LLCs have “limited liability.” This means that the amount that a member of the LLC would have to pay (your liability) in a lawsuit is limited to the amount that a particular person invested into the LLC itself. So for example, let’s say that my 4 friends and I are members of an LLC and we each invest $10,000 into the LLC to get it started. Our LLC is a golf resort and during our 3rd year of business, one of our patrons, Bob Cratchety, falls down the stairs at the entrance and breaks his leg. He sues the company for damages and is awarded $50,000.
Due to our “limited liability” status, none of the LLC members would have to pay any of Bob’s damages. Even if he won an award of $500,000, we would still only have to pay him money from the LLC itself. If the LLC only had, say $100,000 in its bank account, and it could only get $50,000 from liquidating its assets (selling the golf course), then Bob would only be able to get $150,000; he would not be allowed to sue us individually for our houses, our cars, or our children’s education fund. Our liability is limited to our investment.