Forming an LLC for a New Business

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Congratulations on becoming a new business owner. The next step is to consider setting up your business with a limited liability company (LLC). Doing this offers legal protections similar to a corporation, but allows you to manage your company like a small business.

In fact, forming an LLC is one of the most important actions for a business to take. To help, here’s some basic information on LLCs:

What is an LLC? An LLC is a limited liability company. LLCs limit the liability of the owners/shareholders from the debts of the business and against lawsuits against the business.

Why create an LLC? The main reason to form an LLC is to limit personal liability because LLCs have their own existence. Think of them as artificial persons. The LLC owns the business, not the people forming it. LLCs enter into their own contracts and deals, can sue and be sued, and are liable for their own debts and obligations.

The advantages of an LLC include the following:

–LLCs can be governed informally. They do not require a board of directors, meetings, quorums, minute keeping, and other management formalities.

–LLCs have flexibility in deciding how to split their financial interests. An LLC can distribute its income to each member equally, based on his or her capital contributions, or in many other ways.

–An LLC can be a pass-through tax entity without the restrictions that are imposed on corporations.

How do you form an LLC? An LLC is formed by one or more business people—as owners. The owners, called “members,” file Articles of Organization and set out an Operating Agreement. An LLC is a pass-through type of business because the profits and losses are passed on to the members, depending on their share of membership.

While it is easy and inexpensive to form an LLC, the steps of how to do so tend to vary from state to state. As a result, you should check with your specific state to find out what you need to do. Typically, the steps include:

–Choose a business name that is different from existing LLCs in your state

–File paperwork (Articles of Organization)

–Pay a filing fee (from $100 to $800)

–Create an LLC operating agreement (outlines the responsibilities of each member)

–Appoint a Registered Agent (the person representing the LLC and designated to receive any legal documents relating to a lawsuit)

–Publish a notice of intent to create an LLC (only required in some states)

–Obtain required licenses and permits

Who owns the LLC? Individuals called “members” own an LLC. These owners have an equity interest in the assets of the business, shown in the business balance sheet as owners’ equity.

How are the profits and losses of an LLC managed? LLC profits and losses are passed through to individuals.

How are LLCs taxed? LLCs are taxed based on adjusted gross income of the owners.

While this information can be a great starting point, Inc Authority can answer any additional questions you have.  Give us a call today at 866-545-1867 to speak with one of our business experts.