Legal Memo Reports | The Legal Edge: NIL
March 18, 2026
A Quick Welcome
I’m deep in the books this week. Between prepping for my Business Organizations class and tracking the latest portal entries, I’ve noticed a major trend: more athletes than ever are being told they "need" to form an LLC to get paid.
In class, we’ve been dissecting the mechanics of how these entities actually function, from the "corporate veil" to the nuances of the Revised Uniform Limited Liability Company Act (RULLCA).
It’s one thing to hear a booster or an agent say "just form a company," but it’s another to understand the legal and administrative weight that comes with it. Today, we’re looking at whether an LLC is a strategic shield or just an expensive piece of paperwork for your NIL brand.
Let’s get into the business of you.
[IMPORTANT NOTICE]: This newsletter provides general educational insights. Please see the full legal Disclaimer at the bottom of this before acting on any information.
The idea is simple: instead of a brand paying "John Doe" the athlete, they pay "John Doe Athletics, LLC." But while the "CEO" title looks great in a bio, the legal reality is governed by contract principles and state statutes.
The Advantages: Why Form an LLC?
Limited Liability: This is the primary reason LLCs exist. An LLC is a legally recognized business entity distinct from its members. This creates a "wall" between your personal assets (your car, your savings, your scholarship) and the business’s obligations. If your LLC is sued over a contract dispute, your personal property is generally shielded.
Pass-Through Taxation: Unlike a standard corporation, an LLC enjoys "pass-through" tax advantages. The business itself isn't taxed on profits; instead, the income "passes through" to you, avoiding the double taxation trap.
Management Flexibility: You have two main choices for how to run the show:
Member-Managed: You (the athlete) have the authority to bind the LLC and make decisions.
Manager-Managed: You appoint someone else (a parent or agent) to decide the activities of the company.
Charging Order Protection: For my secondary audience of agents and attorneys, this is key. A charging order is the sole method by which a judgment creditor can extract value from a member’s interest. They can get a lien on your distributions, but they can't step in and start managing your brand for you.
The Creation: It’s More Than Just a Name
To bring an LLC into existence, you must file Articles of Organization with the state. This document is essentially the LLC’s birth certificate. However, the real "brains" of the operation is the Operating Agreement.
The Operating Agreement: This is a contract that governs how your business runs. It can be written, oral, or even implied by conduct.
The Trap: If your Operating Agreement is silent on an issue, the state’s statutory default provisions apply. For athletes, you want your agreement to clearly define how profits are allocated and who has the right to sign deals.
The Danger: "Piercing the Veil"
Many think an LLC is an absolute shield. It isn’t. If you don't treat the LLC as a separate entity, a court can "pierce the veil" and hold you personally liable for the business's debts.
Courts look at two main tests to see if your LLC is a sham:
Unity of Interest and Ownership: If there is no independent existence between you and the LLC (e.g., you are paying your personal rent out of the business account), the court may find it unjust to keep the liability shield in place.
Mere Instrumentality: If you dominate the entity so much that it has "no will of its own" and use it to commit a wrong, you lose your protection.
Pro-Tip for Athletes: The failure to follow every tiny LLC formality (like holding formal meetings) usually cannot be the basis for disregarding limited liability, but commingling funds is a fast track to a legal nightmare.
The "Duty" of the CEO
If you are a member-manager, you owe the LLC two main fiduciary duties:
Duty of Loyalty: You must account for benefits derived from the company’s property and refrain from competing with your own LLC.
Duty of Care: You must act in the best interests of the company. While you aren't liable for simple mistakes (the Business Judgment Rule protects you), you can be held liable for grossly negligent or reckless conduct.
Athlete & Family Playbook: 5 Questions Before You Incorporate
Do I have an Operating Agreement? (Don’t rely on state defaults; define your own rules for management and profit sharing).
Am I prepared to keep my money separate? (Rule #1: The LLC needs its own bank account. No personal coffee runs on the business card).
Member-managed or Manager-managed? (Do you want the authority to bind the LLC, or do you want an advisor to handle the decision-making?)
What is my dissociation plan? (Under the RULLCA, you can withdraw at any time, but that doesn't necessarily mean you get an immediate payout for your share).
Is the cost worth it? (Filing Articles of Organization and paying annual fees only makes sense if the liability protection and tax benefits outweigh the maintenance costs).
Overall Take Away
An LLC is a sophisticated legal tool, not just a lifestyle flex. If you are a high-value athlete entering the Transfer Portal or signing major national deals, professionalizing through an LLC might be good for you, but only if you are willing to respect the "wall" between yourself and your business.
Disclaimer: I am a law student, not a licensed attorney. This newsletter provides general educational insights and does not constitute legal, financial, or professional advice and should not be relied on as such. No attorney-client relationship is formed by reading this content. I cannot practice law or provide specific legal counsel for your individual situation. Always consult with a qualified professional before forming a business entity.
NIL laws are constantly evolving, and the information provided might not be the most current at all times.