Corporate LLC: Everything You Need to Know
Filing a corporate LLC is one of the most important aspects to starting a business3 min read updated on February 01, 2023
Filing a corporate LLC is one of the most important aspects to starting a business. When you are ready to take on the role of business owner, you need to choose the best business structure that relates to the nature of your business.
Structuring a Business Overview
Selecting your business structure is one of the most crucial aspects of setting up a business. Your business is considered a sole proprietorship or partnership if you choose to not set up your business in any way. Both of these options are the easiest, but they have a significant disadvantage. Neither option allows you to separate yourself from your business.
If the sole proprietorship or partnership is sued, you stand to lose your personal assets. This is why a LLC and C corporations are so attractive. They highly decrease the risk for your liability in the event your business loses money or is sued. However, there is a big difference between the two when it comes to taxation.
Advantages of Starting an LLC
There are some advantages of starting out your business with an limited liability company:
1. Pass-through taxes: You will not need to file a corporate tax return. You will report your profit and losses on your own taxes so that you avoid being taxed twice.
2. There’s no residency requirement: You do not have to be a citizen of the United States to start an LLC.
3. Legal protection: You will have limited liability when it comes to business debts.
4. Relevant as a business: All entities dealing with businesses will take you more seriously as an LLC. This includes lenders, suppliers and partners.
Disadvantages of Starting an LLC
On the flip side, there are also some disadvantages of starting your business structured as an limited liability company:
1. There is not as much potential for growth: Owners of LLC may not offer stock shares to entice investors.
2. No uniformity: LLCs are treated in different ways from state to state.
3. Tax on self-employment: Your earnings in an LLC can be taxed via self-employment taxes.
4. Taxes on your appreciated assets: If you change a business already in existence to an LLC, you could pay additional taxes. This is just another way tax on a business can happen.
How to Create an LLC (Limited Liability Company)
The following are the steps to creating your own LLC:
1. Choose your legal business name and make sure you reserve it with the Secretary of State’s office where available.
2. Fill out and file the Articles of Incorporation with your state.
3. Determine the members and who will run the operations of the business.
4. Determine how many people will be owners will be attached to the LLC.
5. Fill out an application for your business license and any other certifications you need for your specific business.
6. Fill out and file from SS-4 with the IRS to get your Employer ID Number.
7. Obtain any additional ID numbers as required by your state.
Keep in mind that the requirements will vary in different regions, but you should expect to pay all taxes, including disability, unemployment and payroll.
Why Is an LLC not a Corporation?
Contrary to popular belief, a “limited liability corporation” is not a thing. LLC stands for limited liability company. If you haven’t incorporated, you are not a corporation. An LLC cannot be incorporated. Both options to have to register with the state, but the LLC is not required to incorporate.
1. Pass-Through: A pass-through business lets the profit and loss of money pass on to the owners and shareholders. The income from the business is the income of the owner and can be passed on to a personal tax return. A LLC is a pass-through business.
2. Separate Entities: A corporation is considered a separate entity from the owner. The profit and loss sustained in the corporation is independent of the personal income tax liability of the owners.
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