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What's an LLC?
Perhaps the most popular formal business type among small businesses today, an LLC is a legal business entity that offers the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship.
How are LLCs taxed?
By default, an LLC’s profits and losses are “passed-through” the LLC and reported on the owner's personal income tax returns. LLC owners have the option to file an Entity Classification Election (Form 8832) with the IRS to elect corporate (aka double) taxation for their LLC instead. This may be preferable for LLCs that wish to reinvest a large portion of their profits in the business rather than claiming it as income on the owner's personal returns.
What are the advantages of an LLC?
- Limited liability protection
- Pass-through taxation
- Fewer formal compliance requirements
- Flexible management structure
- Flexible profit distributions between owners
What are the disadvantages of an LLC?
- Self-employment taxes (unless the LLC opts to be taxed as a corporation)
- Can't be traded on public stock exchanges
- Difficulty raising venture capital
- Possible limited term of existence
How is an LLC formed?
To create an LLC, you’ll need to file articles of organization with your state, designate a registered agent, and pay the necessary filing fees.
Depending on your state, you may also be required to file an initial report and/or publish a public notice of your LLC's existence. After registering your business, you must also obtain any business licenses and permits that may be required for your LLC to legally conduct business. Those licensing requirements can vary greatly depending on location, industry type, number of employees, and more.
What are the name requirements for an LLC?
Each state has its own specific naming requirements, but in general, you’ll need to choose a name that isn’t the same as (or deceptively similar to) a name already in use by another business on file with your state. You'll also need to choose an ending for your business name that indicates it’s an LLC. This can simply be “LLC” or some other abbreviation of “Limited Liability Company.”
What are an LLC's owners called?
An LLC's owners are called members. LLCs must have at least one member. If an LLC has only one member, it is considered a “single-member LLC.” An LLC with more than one member is considered a “multi-member LLC.”
Members should be listed in the operating agreement along with their ownership percentages, rights, and responsibilities. Membership certificates—which are kind of similar to stock certificates—can be issued by the LLC to show proof of ownership.
How are LLCs managed?
LLCs typically choose between two different management structures: member-managed or manager-managed.
A member-managed LLC is managed by all of its members. Aside from being the simplest LLC management structure, it is also, by far, the most popular.
In a manager-managed LLC, the members appoint one or more managers to handle the management and operations of the LLC. The manager/s appointed may be members, outside hires, or a combination of both. The manager-managed LLC structure isn't very common, but may be preferred by LLCs who have one or more silent/passive members.
Depending on your state, the articles of organization and/or operating agreement will need to specify which management structure your LLC has.
What compliance formalities will I need to follow after forming my LLC?
In addition to the oh-so-highly recommended (and in many cases, required) operating agreement, LLCs are encouraged to hold annual member meetings and keep meeting minutes. While not required, this paper trail—like the operating agreement— can help strengthen your limited liability protection. In most states, LLCs must also comply with annual report filing requirements.
What's an operating agreement?
An operating agreement is a written contract between an LLC’s owners—or a statement of declaration for a single-member LLC—that lays out the structure, management and operating procedures of the LLC, including ownership percentages, members’ rights and responsibilities, a succession plan, how decisions will be made, and more. Sounds important, right? That's because it is.
While not every state requires an LLC to have an operating agreement, it is highly (and we mean HIGHLY) recommended that every LLC have one. Without it, disputes will be settled by the court using the state’s default laws, which may not be in the best interest of its member/s. Having an operating agreement can also increase the separation between the LLC and its owner/s, which strengthens the owner's limited liability protection—that's always a good thing to do.
We take compliance seriously, so the operating agreement offered with our incorporation packages is customizable, allowing you to easily choose which provisions will best meet the needs of your LLC and its members.
What are initial meeting minutes?
What do you do after forming an LLC? You have your initial meeting, of course! This is where some of your LLC’s most important decisions ever will be made, so documenting them is a must. Topics may include appointing managers and defining their roles and salaries (in manager-managed LLCs), resolving to open a bank account, and reviewing and adopting the operating agreement, and more. Our fully customizable minutes will guide you through the various elements of the initial meeting and help you easily document every important detail.
How do I get started setting up an LLC?
You can get started right here, right now.