Forming a limited liability company (LLC) provides liability protection for any type of business, and should be among the first steps a new business owner takes. Starting an LLC can help protect personal assets while adding legitimacy to the company.
What is an LLC
An LLC is one of the most popular entity types chosen by new business owners and start-ups. It’s of the easiest entity types to set up and maintain with few annual requirements. One of the reasons an LLC is such a popular choice among small businesses is because it liability protections while being very easy to operate and maintain.
Who should form an LLC?
In the US, there are over 21 million existing businesses that are unincorporated. And each year, more than 620,000 new businesses open. Though the incorporation process should be done when a business first opens, many start with marketing efforts first (like a website and advertising) before covering the legal basics. Just because a business has been around for a while, does not necessarily mean they are incorporated!
What is Liability Protection
Filing a limited liability company separates the personal assets of a business owner from those of their business. This prevents financial responsibility for debts and liabilities of the business. Even though members are still liable, that liability is limited to the extent of their investments in the business. If, for instance, the company is involved in a lawsuit, the assets of the LLC itself could be in jeopardy, while the personal assets of the members/owners would be protected.
- Protect personal assets
- Save money on taxes
- Build credibility
- We handle the paperwork
Limited liability companies are easy to maintain while remaining extremely flexible, so it’s not surprising that it is a popular choice among businesses of all different shapes and sizes. Often, LLC owners are self employed or run smaller businesses where the simplicity of pass through taxation makes a lot of sense. Since the profits and losses are reported directly on the owners personal tax returns, filing taxes is much easier.
For businesses in industries, like construction or real estate, where unforeseen circumstances and hazardous conditions may hold the owner responsible, consider incorporating as an LLC. This entity may not be the best choice for businesses that plan on raising capital through outside investors. LLCs are not public structures and do not have shareholders, so taking a company public is not an option. However, in the event that the business owner would like to take their business public they may switch to a public legal structure, like a C corporation, later on.
LLCs have fewer ongoing requirements compared to their corporation counterparts. For example, an LLC is not required to keep minutes or hold annual meetings. An LLC also does not have a board of directors, and isn’t is held to the same record-keeping standards of a corporation. Keep in mind that the state of incorporation will have its own set of annual requirements. That includes filing the required business licenses and permits, which vary from state to state. Be sure to check in with the applicable Secretary of State to ensure required filings aren’t accidentally missed.
Depending on how the business is structured, (the amount of revenue the business earns, and several other factors) forming an LLC can provide potential tax benefits for business owners. LLCs are allowed to choose how they want to be taxed, either as an S corporation or C corporation. These options are not available when you are operating as a sole proprietorship. LLCs don’t pay their own taxes directly, the income of the business its passed on to the members of the LLC through “pass through taxation.” This means that a member is subject to self-employment taxes, but at higher levels of income, the LLC can often pay a lower base tax rate than a C Corporation. The best way to determine the potential tax benefits is to consult an accountant.
- Articles of Organization: Document that establish your existence as an LLC/Limited Liability Company.
- Operating Agreement: Outlines the ownership and member duties of your Limited Liability Company.
- Sample Documents: Includes Minutes and membership certificate samples.
- Customer Support: Our filing experts will be with you every step of the way to ensure your Limited Liability Company is formed quickly and accurately.
Even though many LLCs only have a single member (owner), the LLC structure itself allows for an unlimited amount of owners. This also gives the power to the owner of the business to determine its structure.
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