What is an LLC?
An LLC is a limited liability company and is a business structure in the U.S. whereby the owners are not personally liable for the company’s debts or liabilities. This structures allows for the characteristics of a corporation to be combined with those of a partnership or sole proprietorship. The owners of an LLC are called members. The LLC is regulated by the state and those regulations vary from state to state.
The arrangement under an LLC is formed using articles of organized which are filed with the state. A company can choose which state that it wishes to form in and the owner(s) should do research to find out what works best. Normally, the owner will form the LLC in the state in which they live and operate the business within. A company can form an LLC in more than one state with one state being domestic and the others being foreign.
An LLC is formed on the state level by completing and filing articles of organization. Often, a registered agent must be designated for the LLC. Different states have different requirements. The business owner should consult with the state of formation to determine what is needed to form the LLC.
Misconceptions
An LLC is not to save you money on taxes. A single-member LLC is considered a disregarded entity as far as the IRS is concerned. A multi-member LLC is considered a partnership. A disregarded entity is a business with a single owner that is not separate from the owner for federal income tax purposes. Taxes that are owed by the business are paid on the owner’s tax return and are taxed at the rate that the owner pays taxes. This is not a good or bad thing in itself, and you should talk to a professional to determine if this is the correct business structure for you.
Also consider, that the business can change its designation by filing Form 8832 Entity Classification Selection.
Advantages and Disadvantages of being classified as a LLC
Advantages of LLC
· Limits the business owners’ liability
· Easy to form and manage
· Profits are passed through to owner which makes tax prep easier.
Disadvantages of LLC
· LLCs are normally dissolved upon death or bankruptcy of a member
· Profits are subject to self-employment taxes
· Fewer fringe benefits
Steps to creating an LLC
1. Choose a name for your LLC.
2. File Articles of Organization.
3. Choose a registered agent.
4. Decide on member vs. manager management.
5. Create an LLC operating agreement.
6. Comply with other tax and regulatory requirements.
7. File annual reports.
8. Out of state LLC registration.
What is a registered agent?
A registered agent is an individual or entity that is designated by a company to receive service of process notices, government correspondence and compliance documents on behalf of the business. The registered agent receives service of process and other important correspondence for the business and forwarding those correspondence to the business in a timely manner.
Registered Agent Requirements
Þ A registered agent has to be a resident of the state that your LLC or Corporation is registered in.
Þ The agent must have a physical address where documents can be delivered. A P.O. Box is not acceptable.
Þ The agent must be present at the physical address during normal business hours.
What is the articles of organization?
The articles of organization are a document similar to the articles of incorporation, outlining the initial statements required to form a limited liability company (LLC) in many U.S. states. Some states refer to articles of organization as a certificate of organization or a certificate of formation. Once filed and approved by the Secretary of State, or other company registrar, the articles of organization legally create the LLC as a registered business entity within the state.