The distinguishing feature of limited liability entitles is the limited liability to the owners. Many entrepreneurs opt for a limited liability model of enterprise for greater borrowing power and the preferential rates of repayment. However, these benefits are not always guaranteed in a limited liability enterprise. In certain instances, the lending institution may ask the members, or the head of the company to personally guarantee the loan in the absence of any financial records for the company. Such an act obviously lifts the cap of limited personal liability of the members.
In some states, the members have to pay some sort of franchise or capital values tax in addition to the up front fee for creating the LLC. The calculation of franchise or capital values tax and the frequency of payment differ from state to state. For instance, in Delaware the tax is charged as a flat fee, while in other states it may be calculated based on company profits or operating revenue.
Since limited liability entities shield owners of businesses from personal liability some experts have advocated that the piercing-the-veil theory can apply to LLCs and LLPs. Owners and managers of limited liability entities can also be made liable for the tortious acts committed while acting on behalf of the business.