In the world of business law, confusion over terms and definitions can lead to grave errors in the application and understanding of the law. A recent example that serves as a stark reminder of the importance of terminological preciseness is the conflation of Limited Liability Companies (LLCs) and corporations. Law Professors Samantha Prince and Joshua Fershee draw attention to this issue in their article titled “An LLC By Any Other Name Is Still Not A Corporation.”
In their piece, they warn about the inherent technical errors rooted in interchanging LLCs and corporations, two distinctly different entities under the law. The professors highlight the disturbing frequency with which the term “limited liability corporation” is erroneously used in legal cases to refer to LLCs. The misuse of the term is not insignificant, appearing in close to 9,000 cases and potentially skewing the legal understanding and interpretations of the exact nature of the entities involved. This careless conflation of distinct legal entities could have significant implications for cases involving these business establishments.
The distinction between a corporation and an LLC extends beyond just semantics. Legally, they differ in aspects such as their ownership structure, taxation, and governance. Corporations are owned by shareholders and managed by a board of directors, whereas LLCs have members who also may serve as managers of the company. The tax implications are different too, with corporations subject to double taxation (both corporate level and shareholder level) while LLCs are generally taxed only at the individual level.
The attention brought to this issue by Professors Prince and Fershee is an important reminder for both practicing lawyers and legal academics of the need to ensure precision with terms, definitions, and legal concepts. A failure to maintain such precision could cause confusion and potential misinterpretation, with far-reaching consequences on legal judgments and business activities.
To read more on this topic and explore the insightful work of Professors Prince and Fershee, follow their article.