What is a Limited Liability Company (LLC)? How to Start with LLC?
The article throws light on the subject of LLC- a Limited Liability Company, how to form one and the various aspects related to it. Here are the key points that the article focuses on:
- What is Limited Liability Company (LLC)?
- What are the Advantages of LLC?
- What are the Disadvantages of LLC?
- Types of LLC
- How to Form an LLC?
What is Limited Liability Company (LLC)?
An LLC is an excellent choice for business owners who want the liability protection of a corporation but without the double taxation. The LLC is a type of organization with all the advantages of a corporation, along with the ability to pass business profits and losses along to you personally.
All the owners or the founders of an LLC are called members and they share in the benefits of an LLC structure. Individuals, businesses, or several partners can be the members of an LLC.
What are the Advantages of LLC?
Following are the three main benefits to establishing an LLC:
- LLC members do not have personal liability for the LLC's actions or decisions.
- An LLC requires much less paperwork to form and maintain than a Subchapter S corporation. Although the two are similar in many aspects, an LLC is considered to be more hassle-free.
- The profits and losses of the business can be allocated amongst the members in any way they choose. There is no requirement that they be allocated equally, although everyone must claim their profits and losses on their personal income tax returns.
What are the Disadvantages of LLC?
An LLC has the following minor disadvantages:
- When a member of an LLC dies or leaves, the LLC needs to be dissolved and a new LLC must be formed.
- As the LLC members are considered employees, members must pay self-employment tax contributions of 15.3%.
Types of LLC
A LLC offers both limited liability and pass-through taxation, combining the best of features into one. There are several types of LLCs.
Domestic LLC
LLCs that conduct business in the state where they were formed are referred to as domestic LLCs. An LLC is usually a domestic LLC when we talk about it.
Foreign LLC
If an existing LLC wishes to open an office or establish a physical presence in a new state, the LLC must be registered as a foreign LLC in the new state.
Professional LLC
LLCs organized for professional services, such as medical or legal practices, are called Professional LLCs. It is required that certain members of an LLC possess the necessary licenses to verify their professional qualifications before the LLC can be formed.
It would be wise to have a lawyer by your side before forming an LLC. That is because the Professional malpractice claims are not covered by the limitation on personal liability in professional LLCs.
Series LLC
A series LLC consists of a primary parent LLC providing limited liability protection to a series of child companies. Furthermore, each child business is exempt from the liabilities of its siblings in a single series LLC.
How to Form an LLC?
Basic steps to form an LLC are:
Selecting the State
You must first select the state in which you want to form your LLC. Here is the list of the states that you could choose from:
Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois | Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana | Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island | South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington Washington D.C. West Virginia Wisconsin Wyoming |
Naming the LLC
Establishing an LLC requires you to identify the fact that it is a separate legal entity from you. Therefore, the name of the LLC should be different from yours. Along with that, you must also ensure that there does not exist another LLC by the same name. In other words, while deciding a name for your LLC, you must ensure that it is unique.
Moreover, once you have decided the name of the LLC, make sure that you add LLC at the end. For example, Designer Handbags LLC.
Selecting an LLC Registered Agent
You need to select an LLC registered agent. An LLC registered agent could be a business entity or an individual who shall be taking care of all the legal paperwork on the behalf of your business.
Filing LLC’s Articles of Organization
The next step is to complete and file Articles of Organization. In essence, it is a form on which the name, address, and names of all members of the company are listed. Most states require you to file your Articles of Organization with the Secretary of State, but make sure to check with your own state for more information.
Creating an LLC Operating Agreement
The next step will be to apply for licenses and permits that your business needs to operate legally once you've filed your Articles of Organization.
Fetch an EIN
EIN is the Employer Identification Number. It helps the US IRS, the Internal Revenue Service for taxing businesses. You can apply to the IRS for a free EIN.
Also, find out if your state taxes LLC income by contacting your state's income tax authority. In some states, LLC income is taxed, but federally LLCs are not taxed.
How can Deskera Help You?
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With the well-thought and well-designed templates, you can now anticipate your work to become simpler. These templates can be used for transactions like invoices, quotations, orders, bills, and payment receipts.
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Deskera People is another platform that enables you to expedite and simplify the processes. Through its automated processes like hiring, payroll, leave, attendance, expenses, and more, you can now unburden yourself and focus on the major business activities. It also assists with driving growth for your business by integrated Accounting, CRM & HR Software.
Key Takeaways
Lets run through the key takeaways before we wrap up:
- The LLC is a type of organization with all the advantages of a corporation, along with the ability to pass business profits and losses along to you personally.
- LLC members do not have personal liability for the LLC's actions or decisions.
- The profits and losses of the business can be allocated amongst the members in any way they choose.
- When a member of an LLC dies or leaves, the LLC needs to be dissolved and a new LLC must be formed.
- Domestic LLC, Foreign LLC, Professional LLC, and Series LLC are the types of LLC observed.
- Selecting the State, naming the LLC, selecting a registered agent, filing Articles of Organization, Creating an LLC Operating Agreement, and fetching an EIN are the common steps you need to take to establish your LLC.