1. Basics of an LLC
2. Forming an LLC

Filing for an LLC is required when forming a new business.

Basics of an LLC

Most business owners choose to form a Limited Liability Company, abbreviated as LLC, because they wish to keep their individual interests separate from their business. If an LLC is utilized in the proper manner, owners will not be held personally accountable for their business's debts and liabilities.

Another benefit of an LLC is that the owners are taxed personally, and tax is not applied at the LLC level; therefore, unlike C corporations, it is not subject to double taxation.

LLCs also provide leniency when choosing who to place in the managing roles of the business as well as how to handle taxes.

Additional benefits of an LLC include the following:

  • Deduction of some expenses
  • Reduction of risks concerning auditing

There are many advantages to forming an LLC; however, if owners are looking to go public or receive funding from outside investments, a corporation is the better choice.

Forming and operating a corporation requires more in-depth procedures such as:

If a business outgrows an LLC formation, it can switch to a corporation so that its needs are better met. Typically, investors are more interested in investing in corporations rather than LLCs.

Legal advice is strongly recommended if an LLC plans to offer business units to investors because this action will most likely bring about the need for additional applications of securities. As a result, a private placement exemption must be utilized to address the filing needs.

LLCs must be direct with their investors, making sure that any and all risks of the investment are made known and that they are aware that a full loss of their investment is possible.

Details of the following rights should be plainly given in either an agreement of investor rights or in the business's Articles of Organization:

  • Rights to earnings
  • Distributions
  • Tax benefits
  • Voting rights
  • Rights for future unit declarations

Forming an LLC

The process of forming an LLC is usually quite simple. While rules for forming an LLC might be slightly different based on the states, the overall process is almost identical. Legal advice is not necessary when forming an LLC; however, it is recommended if the business involves many owners or external investors.

The following steps should be followed when forming an LLC:

  1. Choose the state in which the LLC will be located.
  2. Name the LLC.
  3. Assign a registered agent.
  4. Submit the Articles of Organization.
  5. Pay the filing fee and annual tax if applicable.
  6. Establish an Operating Agreement.
  7. Declare a notice if applicable.
  8. Acquire licenses and permits
  9. Open a bank account for the LLC.
  10. Manage a Membership Ledger.
  11. Stay up-to-date with filing requirements.

Due to the fact that requirements may vary by state, the first topic to address is the location of the LLC. While Delaware's law makes it the popular choice for LLCs, it is recommended that owners choose the state in which the business operates to simplify the process and save money.

Owners may have to register their LLC in multiple states if the company does business in more than one state. This usually includes the following:

  • Submitting a notice with the Secretary of State of each state
  • Paying the applicable filing fees of each state

When choosing the name for an LLC, the following requirements must be met:

  • The name must adhere to the rules given by the LLC division of the applicable state.
  • The name must be unique in that it is not the same as any of the other LLCs registered in that state.
  • The name must conclude with an entity labeling term such as Limited Liability Company or LLC.
  • The name must differentiate from all LLCs registered with the Secretary of State including both foreign and domestic LLCs.
  • The name must avoid the use of restricted words such as bank, insurance, corporation, or city.
  • Owners must verify that the name does not infringe upon another business's trademark.

Other recommendations concerning name choice include:

  • Verify that the name choice won't be confused with other companies' names.
  • Make sure that the name does not hinder the growth of the business.

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