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What is a limited liability company?
The limited liability company or LLC is not a partnership or a
corporation. An LLC is a distinct type of business that offers
an alternative to partnerships and corporations, by combining
the corporate advantages of limited liability with the partnership
advantage of pass-through taxation.
What paperwork is required to form an LLC?
Articles of organization must be prepared and filed with the
state and filing fees, initial franchise taxes, and other initial fees
must be paid.
If your LLC is formed through Business Pro Net Incorporated, all you
need to do is complete our simple order form. We will prepare and file
your articles of organization and pay the initial filing fees.
Do I need an attorney to form an LLC?
No, an attorney is not a legal requirement. You can prepare and file the articles
of organization yourself; however, you should understand the requirements of your
intended state of formation.
You can use our service to form your LLC and save money on attorney's
fees. However, if you are unsure of what entity type would be most beneficial to
your business, consult an attorney or accountant.
What should I name my LLC?
Choose the name of your LLC carefully. It is very important that your
name portray the image you want for your new company. Legally, the name you
select must not be "deceptively similar" to any existing company or
must be "distinguishable on the record" of your state.
For example, if an LLC named Flower LLC exists in your state, you probably
would not be allowed to name your business Flour Limited Liability Company.
It is possible that the name you select will not be available; therefore,
we ask for a second choice on the LLC order form.
Additionally, most states require that the name you select show your business
is a limited liability company, by including the words "Limited Liability
Company," or the abbreviation LLC.
How many people are needed to form an LLC?
The IRS does allow one member LLCs to qualify for pass-through tax treatment;
however, taxation of one person LLCs at the state level may be different.
How is an LLC taxed?
A state-registered LLC can be taxed for federal income tax purposes as a
partnership. Under the check-the-box rules, an LLC can elect partnership status
to avoid taxation at the entity level as an "association taxed as a corporation."
If an LLC is not taxed as a partnership, it will be taxed at the entity level similar to a
standard or C corporation.
The state income tax treatment of LLC profits and losses may or may not
mirror the IRS tax treatment depending on the state. For specific information on
your state rules visit your state's web site. The web address can be found on our
detailed state information page.
Please note that California LLCs are subject to an annual minimum franchise
tax of $800 per year. The first payment must be made within 3 months of forming your
LLC. The state of California does send a bill to help you to remember to make this
payment.
What is the organizational structure of an LLC?
An LLC is owned by its members. They are analogous to partners in a
partnership or shareholders in a corporation, depending on how the LLC is managed.
A member will more closely resemble shareholders if the LLC utilizes a manager or
managers, because then the members will not participate in management. If the LLC
does not utilize managers, then the members will closely resemble partners because
they will have a direct say in the decision making of the company.
A member's ownership of an LLC is represented by their "interests,
" just as partners have "interest" in a partnership and shareholders
have stock in a corporation.
How is an LLC managed?
An LLC may be managed by its members (owners) or by selected managers.
If the LLC is to be managed by its members, it operates much like a
partnership. Each member has an equal say in the decision making process of the
company.
If the members choose, they may elect a manager or managers to act in
a capacity similar to a corporation's board of directors. These managers are in
charge of the affairs of the corporation.
Member management is the normal default rule of state law. This means
that if managers are not selected in the articles of organization, the members will
direct the affairs of the LLC.
What are the advantages of an LLC?
LLCs offer numerous advantages.
- Pass-Through Taxation
LLCs allow for pass-through taxation. This means that
earnings of an LLC are taxed only once. The earnings of
an LLC are treated like the earnings from a partnership,
sole proprietorships and most S corporations.
- Limited Liability
The LLC owner's liability is generally limited to the amount
of money which the person has invested in the LLC. Thus, LLC
members are offered the same limited liability protection as
a corporation's shareholders.
- Flexible Management Structure and Flexible Ownership is Permitted
Like general partnerships, LLCs are generally free to establish
any organizational structure agreed on by the members. Thus, profit
interests may be separated from voting interests.
What are the disadvantages of an LLC?
The disadvantages of an LLC include:
- More Paperwork Than an Ordinary Partnership
Documents must be filed at the state level to create an LLC, which is
not the case with a general partnership.
- Dissolution Date
Some states require that a dissolution date be listed in the articles
of organization. This date may be amended. Further, certain events,
such as death of a member, a member leaving, bankruptcy, etc. can be a
dissolution event. A corporation has unlimited life and these events are
not dissolution events for a corporation.
- Newer Entity Type
The LLC is a newer entity, and people are not as familiar with the LLC as
a corporation.
Should I choose an LLC or an S corporation?
While the S corporation's special tax status eliminates double taxation, it
lacks the flexibility of an LLC in allocating income to the owners.
An LLC may offer several classes of membership interests while an S
corporation may only have one class of stock.
Any number of individuals or entities may own interests in an LLC. However,
ownership interest in an S corporation is limited to no more than 75 shareholders. Also, S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens.
Also, LLCs are allowed to have subsidiaries without restriction.
To learn more about the similarities and differences of S corporations
and LLCs, click here. For advice
regarding which entity is best for your particular situation, please contact an
attorney or accountant.
What is a publication requirement?
A few states require notice to be published in a newspaper that a
corporation or LLC has been formed. States with this requirement include:
Pennsylvania (corps only), Georgia (corps only), Arizona (corps and LLCs), Nebraska
(corps and LLCs), and New York (LLCs only). The service performed by Business Pro Net
includes the publication requirement for each of the above states except for New York
LLCs.
In New York, all LLCs formed or foreign qualified there are required to
publish a notice of formation for six consecutive weeks in assigned newspapers. The
publication is made at the county level in two newspapers as assigned by the local
county recorder. The cost of this requirement varies greatly based upon the county
where the business is located. In New York County, the publication costs will be
higher than in the rest of the state.
To comply with this requirement, please contact your local county recorder's office and they will assign the newspapers. The county recorder's phone number is located in the blue pages of your local phone book.
How do I get started setting up an LLC?
After you decide to form an LLC, articles of organization must be filed
with that state and initial fees must be paid. If you choose Business Pro Net to
form your LLC, we will complete these administrative tasks quickly and effectively.
After your articles of organization are filed, your LLC should have an
organizational meeting where an operating agreement is adopted, interest certificates
are distributed, and other preliminary matters are completed.
Business Pro Net' LLC kit
includes all of the information and paperwork to make this process easier.
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