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What Is An LLC?

Friday, September 17th

What is an LLC?

When you first come up with the idea of a business, it's the most tempting thing in the world to jump right in and get started. But the realities of taxation and federal and state regulations are best faced during the planning stages of a new venture. For small business owners, the legal structure of the concern can affect taxation on both a federal and state level - as well as a host of other legal and financial matters. Among the choices in structure are sole proprietorship, limited liability corporation (LLC), S-corporation, and partnership. Of these, the LLC is prized by some but often misunderstood.

What is an LLC? An LLC is a legal entity separate from any of the individuals involved in ownership of the venture. Among the primary attractions of this structure is that no owner - or member, as defined in this structure - is individually liable for the debts or obligations of the business. This factor may not seem relevant when sales are booming and the business is flush. But during times of economic distress, if the business falls on hard times, it can save you the inconvenience of sleepless nights.

Commonly, the LLC structure is applied to partnerships and other businesses with a small number of owners. But sole proprietors too can take advantage of its benefits.

Taxation
The federal government taxes LLCs in one of two ways: As a pass-through entity or as a corporation. When an LLC is taxed as a pass-through, the profits go to the owners. The owners in turn pay taxes on those profits when they file their individual tax returns.

Formation
Each state treats the LLC structure differently. Generally, it is simplest to form an LLC in the state in which you do business. However, if you prefer, you can form an LLC in a different state. You must become familiar with the regulations of the state you choose to avoid running afoul of any rules. Some owners choose to form an LLC is a state different from their own - a foreign state - because their native state levies high taxes.

Registered Agent
A registered agent is a person or company on whom notice must be served in case of a lawsuit. It's no fun thinking about potential legal action even before your business is off the ground, but when you form an LLC, you have to name a registered agent. You can choose an owner or manager of the LLC. But naming an independent party or even another company can lend peace of mind. In fact, any adult who lives in the state where the LLC is formed and who has a street address -- rather than a post office box -- can serve as your registered agent. Of course, you want to select a registered agent who is responsible and trustworthy.

Management
The LLC members may choose to manage the entity for themselves. If your members are scattered about the United States, however, it might be prudent to hire a manager. Of course, no matter what your choice, regular communication with the manager is essential to successful business operation.

An LLC is a business structure that may offer tax advantages. Consult your accountant and/or tax professional and consider carefully when deciding whether to form an LLC.

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Company Incorporation Service FAQ

Incorporation is the process used to legally create a company or corporate entity. This is usually done when a business wants greater protection and status than when under operation as a sole proprietorship.
When you incorporate, it separates your company's income and assets from your personal holdings - and from those of your investors and owners. In the event of a lawsuit against your business, your personal savings, property, vehicles, and other assets wouldn't be threatened.
Operating as either a corporation or an LLC offers significant legal protection and benefits. You'll want to incorporate, however, if you plan to do business internationally or go public.
Depending on how much help you need and which provider you select, incorporation service fees range from $49 to $899. That's in addition to any mandatory filing fees in your state.
Your paperwork can be completed and filed in one business day. Each state differs with respect to turnaround times once your application has been filed with the appropriate office.
Yes! Most company incorporation services make it hassle-free to submit all of the required documentation online, and they often file your application on your behalf. Some providers give you the documentation to fill out, but you'll have to file the paperwork on your own.
There are plenty of reputable services on the market, with thousands of satisfied customers who have used them successfully to incorporate their businesses. If you need extra reassurance that the provider you're considering is a reliable choice, be sure to check out their listing with the Better Business Bureau.
Most company incorporation services offer some form of satisfaction policy or error-free guarantee. However, if your paperwork has already been filed, any fees paid to the state probably won't be refunded.

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