Bo and Luke Duke are two good ol’ boys who have a great idea for a new business. They see a need in Hazzard Parish for a new kind of transportation service. Bo and Luke call it “Goober” after their favorite TV character on the Andy Griffith Show. Goober is a phone app that a customer will use to contact a driver to transport them for a small fee to any location within Hazzard Parish. Their cousins Daisy, Coy, Vance, and even Uncle Jessie will drive custom orange Dodge Chargers to use in this modern day taxi service.
However, Bo and Luke have some concerns. One is their liability for all the drivers involved. Just one bad car accident could ruin them. They go to their lawyer, Boss Hogg, for some advice. Bo and Luke have heard it is best for them to form a LLC. But the Duke boys don’t know what a LLC is. They thought it stood for “Long Live Cars.”
Boss Hogg tells them that a LLC is a fairly new form of organizing their business. It means a “Limited Liability Company.” Here in Louisiana, it allows members to form a business together under the management of a Manager, all of whom enjoy limited liability for the actions of the company. For example, if Daisy Duke has a wreck causing injury to her passenger, Bo and Luke won’t be personally responsible for the damages, only their ownership in the company itself would be at risk. The “limited liability” means that owners or members are personally protected from liabilities of the company itself. A LLC is also more flexible in organizing the business structure than an ordinary corporation. Another important aspect of the LLC is that the profits and losses pass directly through to the owners personal income tax return.
If Goober makes a net profit of one million dollars in its first year, Bo and Luke, as its two members, will each be taxed for $500,000.00 each. If the business loses one million dollars, the Duke boys each get a $500,000.00 loss on their personal return. However, Boss Hogg points out to the boys that each member’s pro rata share of the profits represents taxable income – whether or not a member’s share of profits is actually distributed to him. That’s one of the disadvantages of a LLC. Also, the lack of strict requirements for governing the business could mean problems down the road unless a detailed operating agreement is in place. That is one reason why it is important to see an attorney before forming a LLC.
The Duke boys feel better after meeting with Boss Hogg. They give out a rebel yell as they leave the office after forming a LLC. Goober is on its way to a big success.
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David Doughty is an attorney with Cotton, Bolton, Hoychick and Doughty.