In recent years, the limited liability company (LLC) has become a more popular legal structure for upcoming businesses that are in need of personal liability protection and flexibility. The requirements to set up even though it’s very similar varies from state to state. Nonetheless, setting it up is a simple process that can be completed in a few hours depending on the type of organizational structure you want.
As theLLC Guys mention in their article 'How to Start an LLC', people are embracing LLC because it protects your personal assets from lawsuits. It can either be taxed as an S Corporation, a sole proprietorship, or a partnership. LL companies are allowed to have an unlimited number of members. That is unlike an S-corp which has a shareholder limit of 100.
As stated earlier, its most compelling feature is the fact that it limits your liability when your business is sued or you file for bankruptcy. Keep reading to find out more about LLCs.
How They Are Taxed
The federal government considers limited liability companies as disregarded entities. Thus, when you opt for this business structure, the IRS taxes you as a sole proprietorship, a partnership, or a corporation i.e if you're a one-member LLC, have more than one member, or an S corporation or a C corporation respectively.
Depending on the selection made, the IRS provides the tax rules which the business uses to calculate taxes and then prepares an LLC return for the state in which they do business.
The advantage of this is that LLCs do not have separate federal taxes unless it is a C-corp. LLC’s profits and losses are usually transferred down to the next owner who submits those details alongside their personal income tax return. This type of structure ensures there’s no double taxation most businesses experience where they pay taxes on profits and are then taxed again when the business owner pays their personal income tax.
You Need To Go Through An Accredited Agent
An accredited or registered agent is one an organization or person in your state that would receive the documents of your LLC. When you check the best LLC service assessed in this guide, the factors considered, if not the price, are the services offered and the reliability of the company. In selecting one, you can compare their pros and cons and assess if they provide the best value for money.
Benefits Of LLC
One of the major benefits of an LLC is the protection it provides for its owners' personal assets peradventure the business is faced with a lawsuit. When legal issues arise and your business is structured as an LLC, your personal assets would be safe from any judgments that might be imposed on the business. In essence, if your business is unable to settle the fine, there would be no pressure on you to pay the money from your own finances.
Another big benefit, LLC business owners get to enjoy is the flexibility in the way the business's management team is structured. The daily responsibilities can be directly managed by the owner themselves ( member-managed) or be assigned to an employee/contractor to handle ( manager-managed). Also stated in the introduction was how there is no limit to the number of owners LLCs can have with no restriction whatsoever on how profits are shared among the owners. That would be based on their agreement nonetheless though.
Do you detest paperwork? If yes, LLC is the way to go because it needs less documentation and administrative procedures when compared to other business structures.
The Laws Guiding LLC Vary According To State
The kind of business that can be formed using the LLC structure is restricted in many states. A good example would be the restriction of businesses in the financial industry in forming an LLC.
Of course, a limited liability company is a way to go for some businesses because your enterprise can attract investors and there’s the flexibility to share the return in the manner in which they deem fit on a yearly basis. This flexibility, at the same time sometimes includes deciding which members should be paying social security tax on their income and doesn't have to.
The laws regarding LLCs vary extensively, hence, the need for you to be aware of the laws and tax situation of your state. It would help you decide if a limited liability company would be of benefit to you or not.
Deciding On a Business Name Shouldn’t Be Taken Lightly
What name are you planning on giving your business? Bear in mind that if it’s already taken, you would and can not be allowed to use that name. Don’t worry, there are ways to know if the name you have in mind is taken or not in your state.
Go for unique names when choosing a business name so you can avoid trademark infringement claims. Sometimes, you might have a name but aren’t ready to begin the LLC process, you can reserve the name but ensure you’re familiar with the reservation length of your state.
You Need To File Articles Of Organization In The State
For your LLCs to be created, you need to file articles of organization or certificate of formation with the office of the secretary of your state. It’s a form you have to fill out and you would require the name, address, and aim of your company. There’s a fee attached but it varies depending on the state.
If you’re thinking of creating your limited liability company, keep the important things listed here to heart as it would set you on the right path. Getting the right service would go a long way in helping you establish your new business fast.
WRITTEN BYDaria Brown