LLC Company in USA: Everything You Need to Know
Starting an LLC company in USA is a simple process that requires registration in the state where you intend to conduct business.3 min read
Starting an LLC company in USA is a simple process that requires registration in the state where you intend to conduct business. An LLC is an entity that mixes the liability protections of a corporation with the flexible tax structure of a partnership. Since an LLC has features of a partnership and corporation, it is known as a hybrid entity. With that, LLCs are not corporations.
For instance, LLC owners are called members instead of shareholders, and people who manage the business are known as managers. Also, corporations have more stringent rules. An LLC is not mandated to assign managers, hold official meetings, among other formalities. In a single or multi-person LLC, the members can also be called managers.
Unlike C corporation shareholders, LLCs do not pay business income taxes, unless owners choose to have a C-corp classification for the LLC. Rather, all losses and profits pass from the business to members to file on their personal taxes, otherwise known as pass-through taxation. LLC members must report losses and profits on individual federal tax returns in the same manner as a partnership.
You should know the following components of an LLC:
- Member: Members are owners of an LLC. Each LLC must have at least one member. Members do not have to be US residents, and other entities such as other LLCs, trusts, partnerships, and corporations may own an LLC.
- Manager: A manager is the person appointed by LLC members. Managers manage the daily affairs of the LLC. In some states, managers do not need to be individuals.
- Formation: LLCs are not incorporated entities. Therefore, LLCs are created via an articles of organization and signed by organizers.
- Operating Agreements: Operating agreements are not mandatory in some states, but you should have one in place to establish a management structure within your business. An operating agreement should include such factors as share distributions, roles and duties, and compensation plans. Rather than establishing corporate bylaws, LLC members should draft an operating agreement to manage the business in an efficient manner.
- LLC Cancellation: You need to have a cancellation plan in place that would dissolve the business. Events that may cause cancellation may include the death or withdrawal of members.
- Pass-through Taxation: When it comes to pass-through taxation, you do not need to file a business income return. LLC members note their loss/profit portions on their personal tax returns, thus avoiding double taxation.
- Flexibility: An LLC with a sole member is considered a sole proprietorship for tax reasons, while multi-member LLCs are designated as a partnership. For sole-member LLCs, owners do not have to file a tax return. Rather, members would refer losses and profits to Form 1040. The IRS also allows owners to gain a corporate tax classification if owners want to be taxed as a corporation.
- No Residency Restrictions: LLC owners do not need to be permanent residents or U.S. citizens.
- Legal Protections: Creating an LLC gives members liability safeguards from all liabilities and debts of the LLC.
- Increased Credibility: Suppliers, lenders, and partners view LLCs with greater credibility than sole proprietorships and partnerships.
- Fewer Restrictions: An LLC can be tailored according to an owner’s will. LLCs are not subject to annual meetings and other formalities. Also, LLCs face few regulatory hurdles.
LLCs come with a number of advantages, but you must also be aware of the disadvantages:
- Limited Growth: LLC owners cannot dispense stock shares to investors.
- No Uniformity: LLCs are governed according to state guidelines.
- Self-Employment Taxes: LLC earnings are subject to self-employment taxes
- Appreciated Asset Taxes: Such a tax could occur if you convert an existing entity into an LLC.
LLC Naming Process
First, you must choose a memorable name that the public can remember. The name should also mention the product or service you’re offering. For instance, “Smith Lawn Care” is a boring title. Instead, you should name the business “Lush Fields Lawn Care, LLC.” Such a name tells customers that they will get a nice lawn through your services. The most important thing to remember is to follow your state’s naming laws. In addition, the name should come with certain designators, such as “LLC” or “Limited Liability Company.”
To find out more on an LLC company in USA, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers will give you sound advice on establishing a company in your respective state. They will also help you choose the right tax classification for your LLC.