October 18, 2019

What You Should Know About Limited Liability Company (LLC)

Have you ever wanted to learn about LLC and how it works? This post is for you! A limited liability company (LLC) is a business structure owned under state laws, and the members’ liabilities are limited. It can be owned by one person to form a single-member LLC or many people to build a multi-member LLC.

The characteristics of an LLC are almost the same as those in partnership sole proprietorship and corporation. But without your understanding of this business structure, you won’t be able to create a successful LLC. To become an LLC guru, then you need to follow these tips.

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Why Should You Form An LLC?

Although LLC is not for everyone who owns a business, there are many reasons why you should become a member. Whether you are planning to venture into business or you already own one, it would be best to know more about LLC. The company is easy to form and run, and your assets are offered personal protection when the business is sued. Here are some of the benefits that you will enjoy as a member of LLC.

Benefits of LLCs

  • Personal Asset Protection – when you become an LLC member, your assets won’t act as collateral to the business debt. The business creditors will claim only the assets under the name of the company. Without a doubt, this should be the main reason why you should venture into LLC.
  • Tax Advantages – profits from Limited Liability Company go directly to the members of the company. It’s your duty as a member to report your profit shares on your tax returns. The process only gives room for single taxation of your profits. But in co-operation, there is double taxation. Your profits are taxed before the company shares it and also on your tax returns.
  • Investors Help in Raising Capital -Raising enough capital to start or grow a business is always a difficult process for an entrepreneur. The good thing about LLC is that you can raise capital from investors. The investors will contribute funds, property, and services for your business.
  • Flexibility Restrictions on ownership and management of an LLC are very few. If it is a multi-member LLC, one of your members can manage the company, and the company will be member-managed. Another alternative is that the members can appoint a manager to manage the LLC. This type of management is known as manager-managed. Even though LLC has many benefits, there are limitations that come with this business structure.
    • As an LLC owner, it is your responsibility to pay taxes on your LLC income share since LLCs are short-term entities.
    • LLC is slightly costly to start-up compared to sole proprietorship or partnership.

Where Should You Form Your LLC?

Selecting where you want to form your limited liability company LLC can be challenging. The process is complicated, just like picking a business structure. It would help a lot if you rely on factors such as paperwork, tax, operation, and disclosure obligation before settling for a place. With these factors, you will decide whether your business will be located in your state or explore another country.

The two basic options that will help you choose where to register your LLC are

  • Domestic LLC (in your home state)
  • Foreign LLC (in another state)

Domestic LLC is when you register your business in the same state as your home state. Foreign LLC is an entity where the business operations are in another country other than its original state of registration.

Why Domestic LLC

When most of your business operations are within your state, then you should consider domestic LLC. Registering the company in another country will lead to the payment of additional fees as a foreign LLC.

You will have to comply with states and local laws and pay taxes just like other local businesses. But if you chose to locate your LLC in your home state, you will save money by avoiding these added transactions.

Why Foreign LLC

Your LLC may involve numerous transactions outside your home state. When this is the case, then the best option is to register your business as a foreign LLC. It would be best to consult your attorney to determine if the company’s registration should be outside your home state. Delaware, Nevada, and Wyoming are the most hailed states in the registration of foreign LLC.

Step by Step LLC Formation Guide

company registration

Step 1: Select Your State

If you are new in business ownership, the best option is to locate your LLC in your home state. Suppose your business will have a physical presence, for example, offices and shops in many countries. It would help if you considered registering it as a foreign business in each state.

Step 2: Name Your LLC

Name is always the first thing that comes up when you are forming an LLC. Follow the rules of naming since different states have different laws. The business name must have the phrase limited liability or its abbreviation (LLC or L.L.C).

Step 3: Choose A Registered Agent

Find an agent who will send and receive your business legal papers on your behalf. The agents must be a resident of the state where your business is located. You can also find an agent from authorized cooperation that is allowed to work within that state.

Step 4: File Your LLC With the State

To make your LLC official, you have to file your formation document with that state. This document is known as articles of organization or the certificate of organization.

Step 5: Create an LLC Operating Agreement.

This is a legal document that will indicate the ownership structure and roles of members of the LLC. Even though many states dont require the document, you should have one.

Step 6: Get An EIN

An employer identification number (EIN) acts as your LLC social security number. An EIN will help you hire employees or even open your business bank account.
Limited liability company LLC is a business structure that is worth considering. Learning about its operation is an essential step if you want to establish a successful business. With proper planning and strategy, you will build a thriving LLC.