What is a Limited Liability Company?

Community Contributed

By Eileen M.S. Nims, Esq.

A Limited Liability Company (LLC) is a way you can protect your personal assets from creditors or law suits. It is a company that limits the liability you have toward any law suits to only the contents of your company. This is the way it works. When you have a business, or you have a rental unit, or you are providing a service, you can create an LLC for that activity. At the Hawaii State Department for Commerce and Consumer Affairs (DCCA) you can apply for a business license and create your LLC in one easy step for less than $100. The benefits of creating an LLC is that if anyone sues you in relation to your business, rental or service, the law suit can only reach the assets the LLC owns, but not your other assets. For example, you have a rental unit and someone trips over a loose step and breaks a leg. If that person sues you for medical bills and damages, the judgement against you can only be attached to your rental unit, but the judge cannot attach a lien to your own home or other business you own to cover the amount. So an LLC does not protect the business or rental unit from being sued, it protects everything else you own if your LLC gets sued. 

Let’s go a little further with this. Say you have a business on Molokai doing carpentry and you have two rental units – one on Molokai and one on Oahu. You want your carpentry business to be listed as an LLC, so any law suits regarding work done as a carpenter don’t spill over to your rental units or your home. You also want to make sure each rental unit has its own LLC. This way, if one renter decides to sue you, the other rental unit is safe from becoming an asset accessible to this law suit, as is your carpentry business and your home and other assets. For your rental units, the only additional step you need to take, is to make sure you change each deed to its corresponding LLC as owner of the title. 

To make sure your rental unit is separated from your other assets, you first create an LLC – say, “The Molokai Condo by the Beach LLC.” Once you have established this, you contact a property lawyer or estate attorney to create a new deed. This deed will transfer ownership from you as individual to your “The Molokai Condo by the Beach LLC.” If you own the property with other people, such as your spouse, you just want to make sure that the LLC ownership is in both your names and that you create an operating agreement that spells out who the owners of the LLC are, and in what proportions they own the assets in the LLC. 

If you want guidance with LLC-related matters or deed transfers, please feel free to contact Eileen M.S. Nims, J.D. at eileen@nimsesq.com or by phone at (808) 664-1834.