Most entrepreneurs wonder what an LLC or a limited liability company is and how it works for businesses. It is the newest form of business that instantly became a favorite among entrepreneurs, particularly the small to medium-sized company owners. Read on to learn how to start an LLC, what its advantages are, and more.
What Is LLC and How Does it Work?
What is LLC or Limited Liability Company?
A limited liability company is a business entity created under state laws. These kinds of businesses possess characteristics of both partnerships and corporations. Similar to partnerships, LLCs give you flexibility in running your own business and the pass-through tax status. They also give you limited liability protection like corporations.
How does the Ownership of LLC Businesses Work?
The ownership of an LLC works in a number of ways but the standard rule is that owners of an LLC business are called members. It can be owned by a single or more member with a percentage ownership of 100%. A member can be an individual or other business entity.
How Do You Form an LLC?
To form an LLC, you need to file the company’s Articles of Organization with the office of the Secretary of State. This document contains the LLC name, principal address of a business, nature of the LLC, name, and address of the registered agent, and the name of members.
How Many People are Needed to Form an LLC?
Although all states require at least two members to form an LLC, some states allow single ownership. Accordingly, there is no maximum number of members.
What Legal Documents Do I Need to Form an LLC?
Aside from filing the Articles of Organization, you also need an Operating Agreement. This document should indicate the member’s percentage of ownership, distribution of profits and losses, voting rights, and how the LLC can be dissolved.
Can I Start an LLC Without the Help of an Attorney?
Yes, you can definitely prepare the Articles of Organization and Operating Agreement by yourself. All states permit the business owners to personally file the documents to bring an LLC into existence. Therefore, it is not necessary to pay an attorney’s services to do it for you.
How are LLCs Managed?
An LLC management can either be member-managed or manager-managed. A member-managed set-up means all members are involved in managing the business. On the other hand, a manager-managed LLC is where members appoint a someone to run the business on their behalf. This manager can either be a member or a non-member (one who is not an owner of the LLC).
Can I Convert My Existing Business to an LLC?
Although most states permit the conversion of existing businesses to form an LLC, not all businesses such as banks and insurance companies are permitted to do so. It is best to ask your state representative before proceeding with the conversion.
Can I Act as a Registered Agent for My Own LLC?
A registered agent is an individual or company authorized to receive legal documents from the state or third-party companies on behalf of the business. Yes, a member or owner can act as a registered agent on behalf of the LLC.
What is the Difference Between LLC and Customary Corporations?
For most small and medium-sized companies, registering as an LLC becomes easier to manage. Compared to S and C corporations, it has more flexibility such as an unlimited number of members. Registration is also easier when opting to register for an LLC business.
How does the Tax System Works for LLCs?
LLCs work by pass-through taxation. By default, the profits and losses of an LLC pass-through the business owners. However, IRS gives the members the special election to be taxed as S or C corporation.
Do you know the tax benefits of an LLC business? Watch this video by ExpenseTrackerApp to learn more:
Starting a business does not always come easy and it is significantly important to choose the business structure that will fit your business’s goals. When considering an LLC, you must know the benefits and rules like which tax forms are needed when filing for tax returns. In the end, knowing these basics will define how you run your business.
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