You’ve decided that an LLC is the best business structure for your company. That’s one hard decision down, but there are a few other decisions that must be made in order for your business to operate legally.
When filing paperwork, what information do you need? Do you need other members? Let us help answer these questions, as well as other LLC requirements.
What is an LLC?
A limited liability company (LLC) is a legal business structure granted to companies. It’s the perfect mix of a corporation and sole proprietorship. It offers more flexibility and more robust liability protection.
While personal asset protection is one of the biggest benefits of an LLC, there are others that make this an attractive choice of entity. For example, an LLC can be owned and operated by one person, known as a single-member LLC, or by multiple individuals, known as a multi-member LLC.
How an LLC is more flexible than a corporation
When determining which business structure is right for you, you’ll often hear how an LLC is more flexible than a corporation.
While LLCs have laws to comply with, many of the laws can be changed through an operating agreement. An LLC can be a single-owner business, a partnership, or a multi-member structure. This means the owner has the choice to either have the LLC managed by themselves, members, or elect a manager. This is all laid out in an operating agreement, as well as voting rights of members.
By law, Corporations have a stricter management structure. This includes a board of directors, officers, and shareholders – each responsible for a certain aspect of the corporation.
With an LLC, there is not a limit to the number of members you can have, and the laws can be managed with an Operating Agreement set by the members. LLCs can be managed by all members or one elected manager. Through an Operating Agreement, LLC owners have the flexibility to modify their rules as they see fit for business.
What is Required of an LLC
Although LLCs are a popular business structure because of their flexibility, there are still a few requirements to meet, such as:
Business Name – When naming your LLC, it’s required that you choose a unique name that isn’t used, or even similar, to another business in the state.
Registered Agent – You must choose someone to be the person of contact for official paperwork and legal matters.
Operating Agreement – This is not a requirement for an LLC in some states, but it’s a resource you want to have for guidance on how your LLC will be run.
Articles of Organization – Known as the birth certificate of an LLC, these must be filed to legally have an LLC.
Business Licenses and Permits – Business licenses and permits depend on the type of business you form. All businesses will require an EIN, and many businesses will require a general business license, a sales tax permit, and more.
Tax Forms – Tax forms 1065 and 1099 are often issued for LLCs. These are specifically used if you file a tax return on partnership income or if you do business with other companies. There may be other forms that may need to be filed as well, depending on tax standards in the state.
Pay Required Fees – Startup fees vary based on state, as do other optional fees.
When forming an LLC, there are other details you need to work out such as:
- Members and management
- The purpose of your business
- Dissolution date (if applicable)
- Business bank account
After this information is submitted and your Articles of Organization is approved, it takes between 4 to 6 weeks to officially form an LLC.
Who is an LLC Best for?
From how the business is formed and established to business ownership and income taxes, there are some big differences between an LLC and other structures, such as a corporation.
An LLC is owned by one or more individuals, and a corporation is owned by its shareholders. Regardless of the entity you choose, both can offer benefits to your business.
A corporation is a good option for businesses that have a medium-to-high risk, those that need to raise capital, and those that plan to eventually sell. Corporations are best for those who want a more structured business formation with a board of directors and shareholders.
An LLC is the right entity for you if you want limited liability protection, don’t plan to raise capital, and desire less formalities and paperwork than that of a corporation. Any person currently operating as a sole-proprietorship, or a business partnership, should consider forming an LLC for legal protection and tax benefits.
Work with a Lawyer to Create Your LLC
Knowing the tedious details of forming a business structure is near impossible if you’re not experienced in the field. It's a complex process, and one you shouldn’t make quickly nor without help from a business lawyer.
No business is the same or requires the same attention. This is why it’s best to work with a business lawyer who is familiar with the ins-and-outs of forming a business entity. A Lawyer can guide you, answer questions, and even handle behind-the-scenes problems you never knew could occur. They can also assist with tax decisions and act as a registered agent so that they handle all legal matters first-hand – and you can concentrate on running your business!