Form an LLC

Topics To Cover:

  • What is an LLC?
    • A limited liability company (LLC) is a business structure in the United States whereby the owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
  • Reasons to form an LLC
    • What are some benefits of an LLC
      • Liability Protection
      • Flexible Tax Management
      • Privacy (if formed anonymously)
      • Professional
  • How to form an LLC
    • Choose a location - where can you form an LLC?
      • Popular states are your home state, Wyoming, New Mexico, Nevada and Delaware.
    • Choose a name
      • What are some requirements
        • requirements vary from state to state
      • Choose a registered agent
        • Also called a statutory or resident agent
      • Operating Agreement
      • Articles of Organization/Formation
        • file Articles of Organization (or Articles of Formation in some states) with the Secretary of State, Division of Corporations (or w/e that state calls it)
  • Who Should Start an LLC?
    • Who is an LLC best for?
      • Anyone with a hobby that consistently loses money does not qualify as a business. E.g. a car shop with 10 years of losses.

Questions To Answer:

  • Is an LLC really necessary?
  • What is the purpose of forming an LLC?
  • Can I file for an LLC on my own?
  • What must be filed to form an LLC?

Keywords:

  • LLC
  • Starting an LLC
  • Limited Liability Company
  • Forming an LLC

Form an LLC

A limited liability company, or an LLC as they're termed, is a typical business structure many entrepreneurs seek out for its benefits. The Balance defines an LLC as a business entity owned by its members that offers superior protection to a sole proprietorship. Typically, these protections extend to the assets of the members. In most cases, an LLC member will be able to retain their assets independently of the company. If the company gets taken to court, the claimant can only levy a claim on the company's assets, not that of the members. Business owners stand to benefit immensely from forming an LLC. Should a business owner seriously consider an LLC, or is it just too much of a hassle for the average entrepreneur? Do the protections that come with filing for an LLC outweigh the amount of time, effort, and money needed to file for one? Here, we'll delve into what an LLC is, what it isn't, and why it could be a game-changer for a business owner.

LLCs in a Nutshell

Limited liability companies have been in existence in the US for quite some time. It's a testimony to the country's dedication to making free enterprise accessible to everyone. Setting up an LLC does come with a price tag, but most times, it's very affordable. The cost of filing documents for a limited liability company will vary from state to state. In addition to paying for filing costs, a group filing an LLC as an entity also needs articles of organization as well as a few other necessary documents. There are usually several reasons why a business owner may want to file for an LLC, including:

  • Liability Protection: In the typical running of a business, there may be times when the company may come under litigation. If a person does take an LLC to court, they cannot sue the company for the owner's assets. Thanks to how an LLC is structured, the members' assets are protected from liability.
  • Flexible Tax Management: LLCs are pass-through taxation structures, meaning that the company doesn't pay taxes like a typical corporation. However, the LLC can be registered to pay taxes as an S-Corp if the members decide they prefer that method.
  • Privacy: In some states, it's possible to file an LLC anonymously. With an anonymous LLC, the members don't need to be publicly disclosed to preserve their identities. However, there are legal conditions where the members' names may be revealed to a court of law.
  • Professional: An LLC legitimizes a business and makes it look far more professional than if it was run as a sole proprietorship.

How to Form an LLC

Forming an LLC isn't a complex undertaking. While it's possible to hire a lawyer to help with documents and filing, it's also possible to file for an LLC on your own. Anyone can put together an LLC by following a few simple steps:

  • Choose a location: The location of your LLC will determine where it pays taxes (if eligible). Popular states are Delaware, New Mexico, Nevada, and Wyoming. While you can set up the LLC in your home state, you don't have to. Many times, the choice of a location is a trade-off between low tax rates and convenience.
  • Choose a name: The name has to be distinct and unique. Usually, the most challenging part of filing an LLC is getting a name that you can use. The state may also have other stipulations for when you choose your company's name that you have to obey.
  • Choose a Registered Agent: A registered agent handles all correspondence for the company and needs to be located within the jurisdiction where the LLC is filed. You can assign a member of the company to be its registered agent, but that leaves them liable to collecting junk mail since their name and address will be in the public domain.
  • Operating Agreement: A business doesn't need to have an operating agreement, but it would have to abide by the state's default agreements if it doesn't. Some enterprises prefer having a well-defined operating agreement covering how the business functions and what happens in exceptional cases.
  • Articles of Organization: An LLC cannot be formed without filing the articles of organization with the Secretary of State. The articles of organization are also known as the articles of formation, and the department that it should be filed may vary from state to state.

Who Should Consider Starting an LLC?

LLCs are great options for any type of business owner. Sole proprietors who have a business already in operation can benefit from the LLC's protections. They don't even need to have other members since many states allow for forming a single-member LLC. Other entrepreneurs who have assets they would like to be protected from a risky business can benefit from forming an LLC. Professionals who have a registered company under their own name may want something that appeals to the public and their customers more. Operating an LLC as a trading name while maintaining personal licenses and registrations can boost a specialist's business presence and reputation.

If someone has a hobby that consistently loses money over time, forming an LLC may not be their best bet. LLCs need to make money, or else they end up being a drain on the owner's income. Taxes and registration fees would need to be paid yearly to maintain the LLCs operating status. Without meeting these payments, the LLC and its owner may be liable to fines. If you're thinking about filing for an LLC for a business that isn't profitable, it may be best to reconsider.

An LLC benefits a profitable business as it can be to a sole proprietor or specialist practitioner. The protections provided are more than worth the time, effort, and cost of registering the LLC. In many cases, the owners don't even need to get involved in registering the company. Lawyers can quickly put together the details of an LLC and help to file them, taking away even more of the hassle from establishing the LLC.

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