Document Type

Article

Publication Date

2024

Abstract

Business entities have their own unique characteristics. Entrepreneurs and lawyers who represent them select an entity structure based on the business’s current and projected needs. The different needs of each business span myriad topics such as capital requirements, taxation, employee benefits, and personal liability protection. These choices present advantages and disadvantages, many of which are built into the type of entity chosen. It is critically important that people, especially lawyers, recognize the difference between entities such as corporations and limited liability companies (LLCs). It is an egregious, nearly unforgivable, error to call an LLC a “limited liability corporation.” This is not only because lawyers should try to get things right but also because conflating the two entity types can lead to unpredictable outcomes. Perhaps more important, it could lead to incorrect and unjust results. A prime example lies within the veil piercing context. There are nearly nine thousand references to the phrase “limited liability corporation” in court cases. Practicing attorneys are not the only people messing this up. Judges, legislators, federal and state agency officials, and media pundits are also getting it wrong. Most recently, Justice Samuel Alito scribed an op-ed that was published in The Wall Street Journal where he misused the term. Even the TV show Jeopardy! allowed “What is a limited liability corporation?” as the correct answer during one episode. Enter artificial intelligence (AI). AI relies on information it can find, and therefore text generators, like ChatGPT, replicate the incorrect term. With a proliferation of users and programs using ChatGPT and other AI resources, the use of incorrect terminology will balloon and exacerbate the problem. Perhaps one day, AI can be used to correct this problem, but that cannot happen until there is widespread understanding of the distinct nature of LLCs and a commitment to using precise language. This Article informs of the looming harms of misidentifying and conflating LLCs with corporations. Additionally, it presents a warning together with ideas on how to correct the use of incorrect terminology in all contexts surrounding LLCs.

Publication Title

Seton Hall Law Review

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