LLC stands for limited liability corporation, a hybrid of the corporate and partnership business structures.
An LLC provides some of the benefits of both types of entities while also offering pass-through taxation. The owners are called members or managers, depending on the structure.
What is an LLC?
An LLC is a business structure that provides limited liability protection and tax advantages, combining some of the best features of a corporation and a partnership.
An LLC can be set up in all 50 states, but you’ll need to check with your state for specific requirements for forming an LLC.
LLCs are popular for small businesses because they offer limited liability protection but don’t have as many restrictions on who can own stock as corporations do.
Advantages of choosing an LLC as your business structure
LLC is a hybrid entity. An LLC may be subject to a partnership or corporate taxation.
LLC offers limited liability protection. As long as you operate your business under the rules of an LLC, you’ll have limited personal liability for any debts or other obligations of your company.
Setting up and maintaining an LLC is easy, and you don’t need special licenses or permissions beyond what most states require to start any small business.
An LLC is flexible enough for almost anything: from solo entrepreneurs working out of their home offices to large corporations with hundreds or thousands of employees across multiple locations worldwide.
LLCs are easy enough for anyone who wants one but still provide protection from lawsuits from other people trying to take advantage of them because there isn’t much else stopping them from doing so.
Except for personal finances and assets held outside of their businesses, which they may not always be able to do, especially if someone else tries to sue them over something specifically involving themselves personally.
Disadvantages of choosing an LLC as your business structure
However, there are some disadvantages to choosing an LLC as your business structure. One such example is that you won’t be able to raise money from investors in the conventional sense.
In addition, LLCs are not regulated by the SEC. They are taxed as pass-through entities instead of corporations, meaning profits flow directly from the business entity to its owners’ income tax returns, which are taxed at individual rates.
If you want to sell part or all of your company down the road, there will be no capital gains tax on any profits from such sales.
LLC ownership may also be restricted by state law; some states require all ownership interests in an LLC must reside within their borders, while others allow nonresidents legally through US-based attorneys who act as agents on their behalf.
Finally, while some states allow single-member ownership structures where only one person owns 100% interest in their companies, some do not allow this option, so keep this limitation in mind when deciding on creating an LLC.
Things that people should know before choosing an LLC as their entity
LLCs are a good choice if you want to protect your assets but also want limited liability protection. LLCs are similar to corporations in that they have a separate existence from their owners and investors.
However, unlike corporations, LLCs do not pay taxes themselves; an LLC’s profits or losses pass through directly to its owners, who then pay taxes on them individually.
This allows for more flexibility than S corporations or partnerships because there are fewer restrictions on how many members can be involved and whether or not they’re related parties.
Another benefit of choosing an LLC over other business structures is that it offers asset and liability protection.
What next? How do you get started setting up an LLC?
What comes next may involve the steps to setting up an LLC:
Call a lawyer since you now need legal advice from someone with experience with business law and forming corporations or LLCs. Your lawyer can help you navigate the process and answer any questions that come up along the way.
Get a business name; once you’ve decided on your company name, register it with your state’s secretary of state office.
You’ll also want to check if anyone else has registered that same name because if they have, then they would have priority over yours in case of conflicts later on down the road.
Register with the IRS & open bank accounts: After all this hard work–you can finally get started doing business.
Register for an Employer Identification Number (EIN) through IRS; open up bank accounts in both personal & corporate names; write checks from those accounts.
Ways to form an LLC
To form an LLC, you must decide on the type of business you want to pursue. Once that’s done, it’s time to get down to business. There are several ways in which an LLC can be formed.
You are forming your own company online by quickly creating an LLC by going online and filling out some basic information about yourself and your company–including its name and purpose–before filing with state authorities.
Forming your own company in person, if you prefer doing things firsthand, there are plenty of offices across America where entrepreneurs can walk into for help getting started with their new venture.
Can a business owner handle this on their own?
You can handle it yourself. You don’t need a lawyer to form an LLC, but it’s always a good idea to get one to review your paperwork before filing.
You’ll need to file the necessary paperwork with your state government and pay any fees associated with forming your business entity. It’s not complicated, and you need to know where the forms are and what information they require.
The ongoing responsibilities of an LLC
LLCs have a lot of ongoing requirements, and you’ll need to keep up with annual reporting, tax filings, and meetings.
You’ll have to first file an Annual Report with the Secretary of State in your state within one month of your LLC’s anniversary date.
The report should include the names and addresses of all members; a description of how profits are distributed among members; any amendments made during this year; and an updated list of managers or agents authorized by each member.
Conclusion
If you’re considering an LLC, it’s essential to understand the tax implications. The good news is that LLCs can be taxed like corporations or partnerships, depending on how they are set up and their business type.
In general, LLCs tend to have lower taxes than sole proprietorships or standard corporations because they don’t pay federal income tax at the corporate level.