A LLC or a Limited Liability Company is actually a particular structure of private business or company. In such limited liability companies the pass through taxation of an individual run business or a partnership is combined with the limited liability of that company. In such a company, the members or the employees are not held individually responsible or liable for the debts or liabilities of the business. Instead, a mixed entity or a hybrid entity is created with the partnership or the sole proprietorship for protection purposes like those mentioned in the following list:
- You can restructure or form your business in any way possible to suit your needs.
- The personal assets of your business are protected.
- Due to the availability of the pass through taxation option, you will not have to pay taxes at a corporate stage.
Due to the protection detail that comes along with having a limited liability company, many business owners decide to form one. But many also find the process of forming one a little difficult mostly because they do not know much about it or so not have enough information on how to start an LLC. However there are so many good online agencies available that not only provide the necessary information but also give guidance regarding the processes involved. To form an LLC, you must follow the steps given below:
- Fill in the required paperwork to get a name for your business entity. Now you cannot have different names for the same entity even if it is in a different area. Therefore always check whether the name you have selected is available or not. This will ensure that there is no confusion and that there will be no problem regarding trade infringement.
- Your LLC will have to have a statutory agent or a registered and having one is compulsory in all states. The job of a registered agent is to receive documents, lawsuits and subpoenas for the LLC and then give it to the concerned person. The registered or statutory agent can usually be any person who is a resident of the state and is over eighteen years of age or he/she can also be a member of the concerned company.
- You will be required to have a LLC operating agreement which will provide information regarding how the LLC functions and how you run your company. This is not always necessary in every state but it usually contains details like business deals, governing rights in the company, ownership, and allocation of profits as well as losses and also about the voting rights that the members hold.
- Each state has a different way of forming a LLC and it involves different paperwork. Thus, you will have fill out all necessary forms which will have to be signed by a member and some states also require the registered agent to sign it as well.
- Just like other business entity, a limited liability company will also require you to have a tax ID which tells what kind of business entity you have. The tax ID application just requires you to select the entity type for your business. After selecting the entity, make sure that you fill out an application form which requires some personal information, the online agency through which you fill the form will then take care of all the other requirements and very soon you will get the tax ID on your email.
- Once you have filled in all documents and your LLC has been approved, you will have to register the LLC in the state where the business will officially function and get a certificate from the state.
When you have a LLC, you will need to fill in some LLC forms which are mostly tax forms. Now, if the LLC is a single member one, then you will be taxed as a business entity which has a sole proprietor will be and all profits and losses are passed through to your federal tax returns as an individual and to the IRS. LLCs are taxed at the state level and this varies from state to state. Now, in some cases, members decide that instead of a partnership they want a corporation and can be taxed as either a S-Corp or as a C-Corp. there are very little restrictions imposed upon a LLC and this is actually a great option for your business.