What is a LLC (Limited Liability Company)
by Robert Nelson
An LLC (Limited Liability Company) is the least complex business structure available. An LLC is not a corporation but a flexible form of company that can be set up as a sole proprietorship owned by a single individual. Forming an LLC can give you some legal protection for personal assets and give your business a more official look and.
What are the advantages
There can be many advantages to forming an LLC.
- Pass-through taxes. There is no need to file a personal and company tax return, the owners taxes pass-though to the their individual tax return. This will help avoid double taxation.
- Enhanced credibility. Suppliers, lenders and customers may be more open to dealing with your business as an LLC.
- No residency requirements. Owners of an LLC do not have to be U.S. citizens or permanent residents.
What are the disadvantages
There is no single model for an LLC, each state has it’s own requirements and regulations, this can make it a little confusing. You should check with your Secretary if State to see what is required. There are many tools online to help walk you through the setup process.
Some disadvantages can be:
- Limited growth potential. You can not issue stocks to attract investors
- Tax recognition on appreciated assets. If you decide to convert an existing business to an LLC you may lose some of these tax benefits on your assets.
How do I create an LLC
In many states you only need to fill out a short form and pay a small filing fee.
You will need the following before you begin the filing process.
- Choose a name for your LLC and reserve it if your states Secretary of State requires it.
- If your state requires it you should draft and file your Articles of Incorporation with your Secretary of State (this also depends on the type of business)
- Decide who’s name the LLC will be filed under, who is the owner of the business.
- If your state requires a business license for your type of business you will need to apply for the license before you form the LLC.
- You will need to obtain an Internal Revenue Service Employer Identification Number (EIN). This is a Tax ID number assigned to your LLC. You can file a Form SS-4 or apply online. There are many sites that you can use, irs-tax-id.com is one site that can help you file the forms quickly with out having to stand in like for hour.
- Your state may require other ID numbers depending on the type of business you have. Check with your states Secretary of State office before filing for your LLC to ensure you avoid costly delays.
Is an LLC right for my business
There is no one right business model. You should look closely at your business and your long term goals before making any decisions. As with all business decisions you need to do some research in to the regulations and decide if and how they can help your business.