Choosing to form a Limited Liability Company (LLC) has numerous benefits. It protects your business venture from unexpected situations such as lawsuits. It also lets you avoid double taxation issues that corporations have. Read more about this business structure and determine if forming an LLC is best for you.

What is a Limited Liability Company?

A Limited Liability Company is a business structure that mixes features of a sole proprietorship, a partnership, and a corporation. Participants of this structure go by the name of members and not shareholders or partners. This arrangement suits small and medium-sized businesses. They are going to obtain the great things about corporations without sacrificing their small business structure.

LLCs differ from corporations in that there aren’t any shareholders; therefore, this organization does not require regular shareholder meetings for major company decisions. LLCs also don’t need their own set of bylaws. There are many states that require operating agreements, but most don’t.

What are the great things about being an LLC?

Owners of an LLC may decide whether they wish to be taxed as a sole proprietorship or as a corporation. Corporations have lower taxes, but this is because the IRS taxes both of them on the corporate and the personal level. A sole proprietorship has higher taxes, but you can select whether the IRS treats you as an individual or as a corporate entity. The IRS treats most LLCs as a sole proprietorship, taxing members and seeking only an information return from the company.

Deciding to form a Limited Liability Company also permits you to avoid personal liability just as a corporation does. Personal liability can easily lead to bankruptcy, particularly when you have a pending lawsuit. In a limited liability company, the company’s assets are separate from your personal assets. The government only holds your company responsible for any mishaps or shortcomings.

This organization structure also provides you with more control on your business. Shareholders must agree on a decision prior to putting into action any changes in a corporation. LLCs, on the other hand, only need a managing member to control business decisions and management.

How do you form an LLC?

The initial step to forming an LLC is to choose where you want to register your company. Each state has its own regulations regarding LLC formation and registration. Next, you should pick an unique name that conforms to your state’s rules. Your name should not violate another industry’s trademark. It must end with any of the three designators – LLC, L.L.C., and Ltd. Liability Co. Some states also bar specific words, such as Bank, Insurance, or City. Check your state legislation before picking out a name.

The next step is to look for an LLC registered agent. This agent will be your company’s representative in the state. Your agent will be the government’s contact person if they need anything from your business. Together with your agent, you will file articles of organization and other disclosure requirements. Some states are more stringent with the information they need. Texas requires a list of the LLC’s members in addition to regular disclosure documents. Delaware, however, is famous for asking the least information. When your requirements are complete, you only have to pay necessary fees and you’re all set.

The author is a keynote speaker who teaches people how to incorporate in conventions regarding the basics of forming an LLC.

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