What is an LLC?
An LLC, or a limited liability company, is a type of legal business structure that allows a business owner to protect personal assets from business liabilities.
A Limited Liability Company (LLC) is a simple, yet powerful separate entity business structure. LLCs are easy to create and manage. They are flexible, adaptable, and can exist as a sole proprietorship, partnership, corporation, or as a trust.
LLCs are attractive to new business owners for many reasons. Let's take a look at some of the key advantages of forming an LLC.
What are the advantages of an LLC?
Probably the most obvious advantage of forming a limited liability company (LLC) is the protection of your personal assets by limiting liability to the resources of the company itself. In most cases, the LLC will protect your personal assets from claims against the company, including lawsuits.
There is also the tax benefit of an LLC. Anyone starting a business, or currently owning a business as a sole proprietor, should consider forming a limited liability company.
This is especially true if you are concerned about limiting your personal legal liability as much as possible. LLCs limit the liability of the owners of the LLC. If the company goes into debt or bankruptcy, neither owner is personally liable. Thus, if two people open a bakery together, structure it as an LLC, and it goes bankrupt or is sued, the owners will not lose their homes or other personal property in the process.
What are the possible disadvantages of an LLC or Corporation?
There are exceptions, especially when the business owners commingle the assets and finances of the business with personal assets and accounts.
There are both advantages and additional costs to choosing to incorporate as an LLC. It will be up to you to weigh the costs against the benefits, however, for serious business owners, it is often worth it.
The decision to incorporate a limited liability company (LLC) or a corporation depends on the type of business the individual is creating, the potential tax consequences of incorporating the entity, and other considerations.
Both types of entities have the important legal advantage of helping to protect assets from creditors and providing an additional layer of protection against legal liability. When a company operates as a sole proprietorship, it simply begins doing business without forming a separate legal entity.
An LLC operating agreement is a legal document that describes the ownership and duties of the members of your LLC. Generally, they are taxed as sole proprietorships or a general partnership, but SMLLCs and multi-member LLCs have the option to choose to be taxed as a corporation.
How do you form a limited liability company?
The legal structure is created by filing the Articles of Organization with the Secretary of State.
While there are other forms of business organizations such as corporations and sole proprietorships, the LLC has gained popularity because its structure is flexible and allows businesses to grow without many restrictions.
An LLC is a kind of business structure that is a hybrid of a partnership and a corporation. It gives the owners different legal and tax advantages of a limited partnership and a corporation. Business owners can choose to have an LLC taxed as a corporation or a partnership.
The Secretary of State (SOS) is the chief elections officer of your state. The SOS is in charge of making sure all businesses are registered with the state and that each business follows the state’s business laws.
The SOS is also in charge of keeping track of business names to make sure that the LLC name of the business is not already taken. The Secretary of State’s Office (SOS) is also in charge of keeping track of all the registered businesses in the state.
Each state has its own Secretary of State’s Office. For example, the Secretary of State in California is in charge of making sure all businesses are registered, while the Secretary of State in New York is in charge of making sure all businesses are registered and making sure the business name is not already taken.
When you form a limited liability company, the state requires that the Articles of Organization be filed with the Secretary of State.
The Articles of Organization should include the LLC’s name, the registered agent’s name and address, the registered office address, the LLC’s business purpose, and the date the LLC was formed. In addition, the Articles of Organization should have a certificate that the LLC’s information is correct and that the LLC was formed legally.
If you choose to have an LLC taxed as a corporation, the internal revenue service (IRS) requires a registered agent.
A registered agent is a person or business that will receive official mail for the LLC, such as a notice from a government agency. The registered agent should be someone who can legally receive mail on behalf of your LLC. The registered agent will be the person to receive the certificate of formation from the Secretary of State.
You may already have a DBA name for your sole proprietorship (or partnership) that you will want to transfer to your new LLC.
While generally easier to form than a corporation, there are some administrative and compliance tasks that must be done. Below, you'll find out exactly what it means to form an LLC, its advantages and how small businesses can apply for it.
However, there are certain situations in which an LLC can automatically dissolve, leaving the members exposed to risk.
How much does it cost to start a limited liability company?
Let's start with the filing fee which is $50 approximately. You will also have to pay an annual report, that will be due by the anniversary date of your LLC formation.
The cost for this will vary depending on your state, but you can expect to pay between $50-100.
You will also need to have a registered agent according to state law to receive legal documentation for your LLC. This is an individual or entity that will accept any legal documents on your behalf. This person is not required to live in the state you are registered in, but, if they don't, you will need to make sure they are available to accept documents when they are needed.
A small business that earns consistent profits can benefit from the flexible tax options offered by an LLC.
LLC Members can be individuals or other businesses, and there is no limit on the number of members an LLC can have. LLCs vs. S Corps While both the S corporation and the LLC have pass-through taxation, the S corporation lacks the flexibility of an LLC in allocating income to owners.
Limited liability companies, whether single-member LLCs or multi-member LLCs, are subject to pass-through taxation.
LLCs are popular because they offer the same limited liability as a C corporation, but are easier and cheaper to form and manage. Although most businesses operate as sole proprietorships, a formal business structure, such as an LLC, can offer significant advantages, such as asset protection and greater access to small business financing.
In these situations, an LLC can continue to operate as a business entity, but the liability structure of the members can be altered, defeating the initial purpose for creating the LLC.
Members can manage an LLC, allowing all owners of an LLC to share in the day-to-day decision making of the company.
Help with forming an LLC
One of the most important reasons to choose an LLC is how it protects your personal assets. By using an LLC, you can separate your personal assets from your business assets.
If there is any kind of incident or claim that is tied to your business, your personal assets are protected. It is always a good idea to separate your business and personal assets and finances.
Many people are not able to start their own business for this exact reason. We hope you found this article helpful. If you have any questions about our services or are looking to form an LLC, please visit our website or give us a call anytime at 615-282-8420.
Thank you for reading, we are always excited when one of our posts is able to provide useful information on a topic like this!