HOW TO FORM A LLC
What is a LLC?
explain
LLC is an abbreviation for Limited Liability Company.
A LLC is a legal business entity based on state law.
The US Internal Revenue Service does not consider a LLC to be a legally taxable entity.
A LLC can choose to be taxed on the federal level in a few different ways as explained below.
LLCs do not issue Corporate Stock.
A LLC is ideal for small or one-person businesses because a LLC provides all the liability protection of a Corporation but with far less legal formalities.
LLCs have become the most common type of new business since their introduction in the last 30 years. A LLC is a type of business that is authorized by state (not federal) law. A LLC is not a partnership or a corporation but includes features of both. LLCs are structured like a partnership or a sole proprietorship but with limited liability protection for the owners - similar to a Corporation. Because a LLC is considered a separate entity from its owners, the owners cannot be held personally liable for debts and obligations of the LLC, absent any fraud. This is the principal advantage of an LLC.
For example, bankruptcy can have serious personal consequences for a sole proprietorship or general partnership. However, if an LLC declares bankruptcy the owner's assets are considered separate from the assets of the LLC and are thus protected from bankruptcy - that's the "Limited Liability" in a LLC. Each state has different rules governing LLCs.
There are also usually special rules for foreign LLCs. A Foreign LLC is a LLC which is formed in a different state from that in which it wants to do business. For example, a LLC formed in Delaware wants to do business in California. The LLC is a Domestic LLC in Delaware and would register as a Foreign LLC with the California Secretary of State.
The formation documents for a new LLC are usually called Articles of Organization and must be filed with the appropriate state agency - usually the Secretary of State.
We can help you draft Articles of Organization that are specific to your business and comply with all state requirements.
A LLC is ideal for small or one-person businesses because a LLC provides all the liability protection of a Corporation but with far less legal formalities.
LLCs have become the most common type of new business since their introduction in the last 30 years. A LLC is a type of business that is authorized by state (not federal) law. A LLC is not a partnership or a corporation but includes features of both. LLCs are structured like a partnership or a sole proprietorship but with limited liability protection for the owners - similar to a Corporation. Because a LLC is considered a separate entity from its owners, the owners cannot be held personally liable for debts and obligations of the LLC, absent any fraud. This is the principal advantage of an LLC.
For example, bankruptcy can have serious personal consequences for a sole proprietorship or general partnership. However, if an LLC declares bankruptcy the owner's assets are considered separate from the assets of the LLC and are thus protected from bankruptcy - that's the "Limited Liability" in a LLC. Each state has different rules governing LLCs.
There are also usually special rules for foreign LLCs. A Foreign LLC is a LLC which is formed in a different state from that in which it wants to do business. For example, a LLC formed in Delaware wants to do business in California. The LLC is a Domestic LLC in Delaware and would register as a Foreign LLC with the California Secretary of State.
The formation documents for a new LLC are usually called Articles of Organization and must be filed with the appropriate state agency - usually the Secretary of State.
We can help you draft Articles of Organization that are specific to your business and comply with all state requirements.
Who owns a LLC?
explain
The owners of a LLC are called "Members" - not partners or shareholders.
Members may make all business decisions depending on how the LLC is set up.
A LLC may have an Operating Agreement that specifies the responsibilities of each Member.
The Operating Agreement may also specify Managers for the LLC.
Managers are responsible for the day to day operation of the LLC.
Members elect or appoint Managers and have the power to remove them.
Managers may or may not be Members of the LLC.
The liability to repay the obligations, and share in the profits, of the LLC is usually determined by the capital contribution of each Member. The Operating Agreement may also specify the obligations of each Member.
Members need not live in the state in which the LLC was formed or be citizens of the United States. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit Single Member LLCs - those having only one owner.
The liability to repay the obligations, and share in the profits, of the LLC is usually determined by the capital contribution of each Member. The Operating Agreement may also specify the obligations of each Member.
Members need not live in the state in which the LLC was formed or be citizens of the United States. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit Single Member LLCs - those having only one owner.
How does a LLC get taxed?
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A LLC has a few choices in the way its income is taxed by the IRS.
The LLC may choose to be taxed as a Corporation as explained below.
If a LLC does not choose to be taxed as a Corporation then the way the income of a LLC gets taxed by the IRS depends on the number of Memebers
in the LLC.
A LLC with more than one Member gets taxed as a Partnership. A Singe Member LLC gets taxed as a Sole Proprietorship - all income is reported on the Single Member's individual tax return.
The IRS considers a Single Member LLC as a "Disregarded Entity" for income tax purposes. A Disregarded Entity is a business that is separate from the owner for liability purposes, but it is the same as the owner for income tax purposes. A Single Member LLC which does not choose to be taxed as a Corporation is a separate entity for liability purposes. A Multiple Member LLC is NOT considered a Disregarded Entity by the IRS for income tax purposes.
A LLC may choose to be taxed as a C Corporation (which pays Corporate taxes) or a S Corporation (which does not pay Corporate taxes). C Corporations and S Corporations are NOT considered Disregarded Entities by the IRS for income tax purposes.
The IRS must be notified within 75 days on the date on which the LLC was approved at the state level that it intends to be taxed as a Corporation.
A LLC with more than one Member gets taxed as a Partnership. A Singe Member LLC gets taxed as a Sole Proprietorship - all income is reported on the Single Member's individual tax return.
The IRS considers a Single Member LLC as a "Disregarded Entity" for income tax purposes. A Disregarded Entity is a business that is separate from the owner for liability purposes, but it is the same as the owner for income tax purposes. A Single Member LLC which does not choose to be taxed as a Corporation is a separate entity for liability purposes. A Multiple Member LLC is NOT considered a Disregarded Entity by the IRS for income tax purposes.
A LLC may choose to be taxed as a C Corporation (which pays Corporate taxes) or a S Corporation (which does not pay Corporate taxes). C Corporations and S Corporations are NOT considered Disregarded Entities by the IRS for income tax purposes.
The IRS must be notified within 75 days on the date on which the LLC was approved at the state level that it intends to be taxed as a Corporation.
What are the differences between a Corporation and LLC?
explain
- An LLC is not required to hold annual director and shareholder meetings
- A board of directors is not required
- The owners and managers may make all management and operation decisions
- An LLC generally has more flexibility in the way that profits are distributed
- An LLC requires no corporate minutes or resolutions
- Owners do not have to be residents or citizens of the USA
- Corporations live forever. LLCs may be terminated by previously agreed to conditions.
LLCs may be governed by an Operating Agreement. Operating Agreements may include requirements for profit sharing, ownership responsibilities and almost anything else that involves the management and operation of the LLC. Although Operating Agreements are not required in some states, it is highly advisable to have one. We can help you draft an Operating Agreement that is specific to your state and business.
Other considerations for a LLC
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Because a LLC is not a federal tax entity there are no uniform laws that pertain to LLCs from state to state.
If you plan to operate your LLC in two or more states, your LLC may be subject to different conditions and restrictions in each state.
Also, a LLC does not have the same level of protection against dissolution as a Corporation. Unlike a Corporation, there are some circumstances that can cause an LLC to be terminated without the consent of all LLC members. This may occur in the event of the death, withdrawal, or bankruptcy of a member of the LLC. The laws governing dissolution of LLCs vary from state to state.
Also, a LLC does not have the same level of protection against dissolution as a Corporation. Unlike a Corporation, there are some circumstances that can cause an LLC to be terminated without the consent of all LLC members. This may occur in the event of the death, withdrawal, or bankruptcy of a member of the LLC. The laws governing dissolution of LLCs vary from state to state.
How long does it take Form a LLC?
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The time it takes to get approval for a new LLC filing varies from state to state.
If you choose us to file your Articles of Organization, we get your application to the state as quickly as possible - on the same day that
you place your order in most cases.
Some states also offer expedited filing options which is really the only way to guarantee the processing time.
Click on a state in the list below to see specific processing times and fees for that state.
How much does it cost to Form a LLC?
explain
New LLC filing fees vary from state to state.
Our processing fees are $125.
This includes:
Click on a state in the list below to see specific processing times and fees for that state.
- Same day processing of your new LLC order
- Name Check and Reservation
- Prepare Articles of Organization
- File Articles of Organization with the Secretary of State
- Certified Copies of Articles
- Specific state LLC Checklist
- Priority Mail Delivery
- Unlimited Customer Support
Click on a state in the list below to see specific processing times and fees for that state.
How can I get more LLC information for a specific state?
Click on any state in the list below to find out How to Form a LLC in that state
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