What is an LLC
Limited Liability Company, is a modern business structure that combines the advantages of both corporations and partnerships. It offers members protection from personal liability for the company’s debts and obligations. This means that the members’ personal assets are generally shielded from business-related risks.
LLCs can have one or multiple members and allow for flexible management structures. Profits and losses of the business pass through to members, and they report them on their personal tax returns, avoiding the double taxation that corporations often face. This business entity provides a balance between legal protection and operational simplicity. While it involves some formalities like registration and agreements, it’s less complex than a corporation.
The Benefits of an LLC
Limited Liability
Flexible Management
Pass-Through Taxation
Ownership Structure
Un-Limited Duration
Less Legal Formalities
- An LLC grants its members, who are its owners, the advantage of limited liability protection. This means that typically, their personal assets remain safeguarded from the financial obligations and legal liabilities of the company. This division of assets serves as a shield for the personal belongings of the members, especially during times of financial difficulties or legal conflicts that the business might encounter.
- LLCs present a flexible approach to management, offering the choice between member-managed or manager-managed structures. This flexibility extends to day-to-day operations and the process of decision-making within the company.
- In terms of taxation, LLCs benefit from pass-through taxation. This entails that profits and losses flow through to the individual members for reporting on their personal tax returns. This arrangement helps in avoiding the double taxation that is often associated with corporations.”
Types of LLCs
LLCs can take on different forms based on the specific needs and circumstances of the business and its members.
This is an LLC with only one owner, referred to as a member. It’s a simple structure suitable for small businesses and individuals looking for liability protection and simplified management.
This type of LLC has two or more owners, or members. It’s often used for businesses where multiple people are involved in the ownership and decision-making.
In this structure, all members are actively involved in the day-to-day operations and management decisions of the LLC.
In this setup, the members appoint one or more managers to handle the business operations. This can be useful when some members are more focused on investment while others manage the business.
Some states offer the option of forming a PLLC for licensed professionals, such as doctors, lawyers, accountants, and architects. This structure provides liability protection while allowing professionals to practice their licensed services.
Available in some states, an L3C is designed for businesses with a primary purpose of achieving socially beneficial goals rather than maximizing profits. It’s often used by organizations seeking investments from foundations and other socially oriented investors.
Instead of using a single series LLC, some businesses create multiple separate LLCs to manage different aspects of their operations, which can provide an extra layer of liability protection.
This refers to an LLC that is formed in one state but operates in another state. The LLC needs to register as a foreign LLC in any state where it conducts business.
To StreamlineYour Formation Process, Gather These Items First:
- Name of Your LLC (Check your state here on our website)
- Address to Physical or Virtual Commercial Office Space (Check Our Partners)
- Name & Address of Your Registered Agent (We Provide Registered Agent Services)
- Know your NAICS Code (It’s below)
- Purpose of Your Business (It’s below)
- Business Phone Number (Check Our Partners)
- Know if your business will member managed or manager managed.
- Names and Addresses of Members or Managers of the LLC
- Know Your State’s Cost of LLC Filing (Check your State here on our website)
Have These Items Ready Prior to Forming Your LLC
- Check These 2 Locations for Name Availability: Ensure that the name is available for the desired State of formation and the U.S. Patent & Trademark Office (USPTO).
- Have Your Physical Address:
Please have the Physical Address of the business. This address should not be a P.O. Box. Additionally, it’s not recommended for most businesses who are trying to obtain funding or business credit to use their home address.
If you don’t have a physical address then it makes sense to secure a virtual office address. We have a page with a few companies that provide virtual office address.
Name and Contact Details of Your Registered Agent: The registered agent is a person or entity designated by a business to receive legal documents, Service of Process and other official documents on behalf of the company.
The registered agent’s name, address and contact details are essential, as they will receive Service of Process and other legal and official notices from the state on behalf of your business. It’s crucial to ensure that the information stays up-to-date and accurate.
Note: If you choose a personal or a commercial agency to be your RA then the state will require that they sign your formation documents. If you hire a commercial agency they will tell you their process in signing the formation documents.
NAICS: NAICS Code, stands for the North American Industry Classification System. It’s a system used to classify different types of businesses and industries. It helps to organize and categorize businesses based on their primary activities. Each industry is assigned a unique six-digit code, which makes it easier to compare and analyze data related to specific sectors of the economy. So basically, NAICS codes are like little tags that help us keep track of different types of businesses and what they do.
There are two places you can go to retrieve your NAICS Code. Don’t worry they’re free. NAICS Assoc. & Census Bureau.
Here are a few situations where you might need to use a NAICS code:
- Business Registration: When registering your business with government agencies or authorities, you may be required to provide a NAICS code to classify your industry accurately. This helps in ensuring that your business is categorized correctly for regulatory and statistical purposes.
- Market Research and Analysis: If you are conducting market research or competitive analysis for your business, utilizing NAICS codes can be beneficial. NAICS codes allow you to narrow down your research to specific industries or sectors, enabling you to gather relevant data, identify competitors, and understand industry trends.
- Government Contracts and Bids: When pursuing government contracts or bids, agencies often use NAICS codes to identify the types of businesses they are seeking. Having the appropriate NAICS code for your industry can help you identify and qualify for relevant opportunities.
- Data Reporting and Surveys: In some instances, businesses may be required to report industry-specific data or participate in surveys that utilize NAICS codes. Providing the accurate NAICS code ensures that the data collected is properly classified and can be used for statistical analysis.
While not all businesses will necessarily need to use NAICS codes on a day-to-day basis, it is beneficial to be aware of them and understand their purpose. NAICS codes provide a standardized classification system that helps in organizing and analyzing industry-related information, which can be
- Purpose of Your Business:
An LLC’s purpose statement outlines the rationale for establishing the company. Generally, this statement only requires a sentence or two and provides a brief overview of the LLC’s business area. It is crucial to understand that the purpose statement holds a legal significance distinct from your company’s vision or mission statement.
Purpose Some General Samples:
- Sample 1: “The purpose of _________, LLC, is to operate and conduct all lawful business activities legally permitted in the state of ______________.
- ”Sample 2: “The purpose for which ___________, LLC, is formed is for the transaction of any and all lawful purposes for which a limited liability company may be organized under the laws of the state of _______________.”
- Examples of some well known brands:
- Allstate: We help customers realize their hopes and dreams by providing the best products and services to protect them from life’s uncertainties and prepare them for the future.
- AT&T: Inspire human progress through the power of communication and entertainment.
- Bank of America: To help make financial lives better through the power of every connection.
- CVS Health: Helping people on their path to better health.
- Procter & Gamble: We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come.
- Determine if the Business will be Member Managed or Manager Managed:
The main difference between a member-managed LLC and a manager-managed LLC lies in who has the authority to manage the day-to-day operations of the company.
In a member-managed LLC, all members of the LLC participate in the management of the business. Members make decisions jointly and are involved in the daily operations of the company. This structure is ideal for small businesses with a limited number of owners who want to have a say in the management of the company. On the other hand, in a manager-managed LLC, the members designate one or more managers to handle the day-to-day operations of the business. These managers can be members or non-members of the LLC, and they have the authority to make decisions on behalf of the LLC. This structure is ideal for larger businesses where the members may not want to be involved in the day-to-day operations of the company, or when the members lack the expertise needed to manage the business effectively.
- Names and Addresses of Members and Managers of the LLC: You will be required to provide the name(s), address(es) and contact information of the members or managers.
- Duration of Business: Some states will ask what is the Duration of the LLC. Most individuals plan for their LLCs to be around for a long time, so the answer will be “Perpetual”. If not perpetual, than enter the date that you plan to dissolve or end the LLC.
- Know the cost of your states filing fees: Each state has it’s own cost for your LLC. The cost can vary anywhere between $50 to as much as $800. Check our map to find your states’ filling fees.
Who Needs an LLC
- If you are an entrepreneur, real estate investor or business owner you will find that the LLC business entity is the most inexpensive, popular and flexible of all business structures.
- If your business is in an industry that requires physical touch and could potentially pose harm or injury. If your business or cause types of damages to property or equipment you should definitely form and LLC.
- When your business starts to consistently acquire new customers, revenue increases significantly and business expansion occurs then having an LLC will probably be your best choice of business structures.
FAQs of an LLC
How is an LLC taxed?
Answer: By default, an LLC is taxed as a pass-through entity, where profits and losses pass through to the members’ personal tax returns. However, LLCs have the flexibility to choose corporate taxation if it better suits their financial needs.
How do I form an LLC?
Answer: To form an LLC, you typically need to choose a business name, file articles of organization with the state, appoint a registered agent, and create an operating agreement outlining the company’s internal workings.
What is an operating agreement?
Answer: An operating agreement is a legal document that outlines the internal structure, management, and operation of an LLC. While not always required by law, it is highly recommended to establish the rights and responsibilities of the members.
What is a registered agent?
Answer: A registered agent is a person or entity appointed to receive legal documents and official correspondence on behalf of the LLC. It must have a physical address within the state of formation.
Can an LLC have a single member?
Answer: Yes, an LLC can have a single member, and it is referred to as a single-member LLC. The member enjoys limited liability protection, similar to multi-member LLCs.
Are there ongoing compliance requirements for an LLC?
Answer: Yes, LLCs are generally required to file annual reports and pay any associated fees. Compliance requirements vary by state, so it’s important to stay informed about the specific obligations in your jurisdiction.
Can an LLC be owned by non-U.S. residents?
Answer: Yes, non-U.S. residents can own or be members of an LLC. However, there may be specific tax implications, and it’s advisable to seek professional advice.
How can an LLC be dissolved?
Answer: Dissolving an LLC typically involves filing dissolution documents with the state, settling outstanding debts and obligations, and distributing remaining assets to members. The process is outlined in the operating agreement or state regulations.
Can an LLC convert to a different business structure?
Answer: Yes, an LLC can often convert to another business structure, such as a corporation or partnership. The process and requirements vary by state, and it’s recommended to consult legal and tax professionals for guidance.
LLC's Annual Report
An LLC annual report is a required submission to the state containing essential information about the company, such as its name, address, registered agent details, and operational status.
Annual Reports Requirements
Filing Requirement: LLCs are typically required to file an annual report with the state in which they are registered. This report is a formal submission of information about the LLC’s activities and status.
Content: The annual report typically includes essential details such as the LLC’s name, address, registered agent information, and sometimes the names and addresses of members or managers. It serves to update the state on any changes in these details.
Deadline: States impose deadlines for filing annual reports, and failure to meet these deadlines may result in penalties or the loss of good standing status. It’s crucial for LLCs to be aware of and adhere to these deadlines.
Fees: Some states require LLCs to pay a filing fee along with the submission of the annual report. The fee amount can vary, and it is important to factor this into the LLC’s annual compliance costs.
Maintaining Good Standing: Filing an accurate and timely annual report is essential for an LLC to maintain good standing with the state. Good standing is important for legal recognition, business transactions, and access to various privileges offered by the state.
