An LLC is, in short, a limited liability company. This offers legal protections to the personal assets of company owners in the event of a lawsuit. Debts owed by the business are limited to assets of the business, and not the owners.
Additionally, LLCs benefit from“pass-through taxes.” This means that the owners don’t have to file corporate taxes, and instead report on their individual tax returns.
This really is an individual decision, but if you are running a small business, an LLC might be worth looking into. You benefit from limited liability, which protects your personal assets. Not to mention the tax benefits, preventing double taxation.
Another advantage may be just seeming more official. Saying that you’re an LLC could make you seem like a serious company.
Creating an LLC is pretty easy, and very beneficial for relatively low effort. So if you feel like your business is ready for the next step, check out how to form an LLC below.
The rules differ depending on which state you choose to form your LLC in. Check with your Secretary of State to find the specific instructions for your area.
Choose a Name Unfortunately, you cannot choose any name you want. There are some rules for your LLC name, like not using the words“corporation” and not having the same name as another LLC in your state.
Choose a Registered Agent This is the person that receives all official documents on behalf of the LLC. If you are the sole owner, then it’s an easy choice! Generally, the person just needs to be 18 and have an in-state address.
Prepare an LLC Operating Agreement This is not required by the state and is not really necessary if you are the sole owner. But, if there is more than one owner, it’s good to have a written agreement from the start. This will provide guidance on adding more owners or what the procedure is if an owner leaves.
Prepare and File Articles of Organization This document is sent to your Secretary of State along with a filing fee. The fee is different depending on your state and can range from $40 to $900.
Banking, Licensing, Other Business Once you are official, you can obtain a federal tax ID number and set up a bank account. There may be additional requirements depending on your state, such as licensing and permits.
There is your CliffsNotes introduction to LLCs. Now that you know what an LLC is, you can evaluate your business needs and decide if forming one is right for you.
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