Formation LLC: Everything You Need to Know
Formation LLC can be a very involved process, requiring several important decisions.3 min read
Formation LLC can be a very involved process, requiring several important decisions. For example, you will need to choose where your LLC will be formed, how many members your company will have, and the management structure of your LLC.
A limited liability company, or LLC, is a very popular business structure that can be used for both new and existing businesses. Structuring your business as an LLC can be a great choice due to their simplicity and flexibility. With an LLC, you will be treated as a pass-through entity, which is a characteristic that LLCs share with sole proprietorships and partnerships. An LLC also offers the limited liability protections that are enjoyed by corporations.
Although your LLC will still be linked to your personal taxes, your company will be considered legally separate from yourself, meaning your LLC will be responsible for its own legal matters and debts.
The owners of an LLC are called members, and limited liability companies can have as many members as they require. This means that some LLCs will have a single member and others will have multiple members. Members of an LLC will enjoy personal limited liability protections, guarding their personal assets, such as cars and homes, from the debts of said LLC.
If your LLC is ever the defendant in a lawsuit, the members of your company will be protected. LLC members will only be liable for the amount of money that they have put into the company. This can include retained earnings. For example, members can lose what they paid for their company stocks, but their losses will generally be limited to this amount regardless of what the company loses in a lawsuit.
LLCs are significantly less formal than corporations, making them a good choice for small businesses. LLCs have a business structure that is similar to partnerships. Also, unlike corporations, LLC members are usually responsible for managing the company.
With corporations, there are various company positions that are required by law, including:
Members of an LLC can serve all of these roles, and while they are not required, LLC members can also be granted titles and responsibilities. Every LLC member has authority over how the company is managed. Ownership of an LLC is usually described using percentages. This is different from corporations, which express ownership interests using stock shares.
Types of LLCs
There are several different types of LLC, with the most common being a Domestic LLC. A Domestic LLC is simply a limited liability company that has been formed and is operating in the same state. The state where your LLC was formed has the power to govern your company.
If you form a Foreign LLC, this means that your LLC is doing business in a state that is different from the state where your company is formed. For example, if you formed your company in Delaware but are operating in North Carolina, your company would be a foreign LLC.
When you form a Member-Managed LLC, it means that the owners of your LLC are responsible for day-to-day operations. As the most common management structure, this will be familiar to those with a limited liability company.
A Manager-Managed LLC is a company where the members have hired an outside manager to handle the business's daily operations.
Single-Member LLCs are limited liability companies where there is a single member.
Conversely, Multiple-Member LLCs are companies that have multiple owners. If you choose to form a Multiple-Member LLC, you should develop an operating agreement that outlines each member's rights and includes procedures for settling disagreements and continuing operations after the death of a member.
A unique type of LLC is a Series LLC. This is when there is one umbrella LLC that contains a series of separate LLCs. The benefit of a Series LLC is that you can separate and protect multiple assets, such as different real estate holdings. States that allow the formation of a Series LLC include:
In Nevada, there is a type of LLC known as a Restricted LLC. This LLC type was first made available in 2009. These LLCs have restrictions in their Articles of Organization that prevent certain member distributions until the LLC has existed for ten years.
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