LLC FAQ: Everything You Need to Know
Many entrepreneurs read LLC FAQ to understand what an LLC is and how it works. A limited liability company, or LLC, is a type of business structure that is a hybrid of both a corporation and a partnership. 3 min read
2. What Forms Need to Be Filed to Form an LLC?
3. Can an LLC Have an Unlimited Life?
4. What Are the Definitions of "Managers" and "Members" in an LLC?
5. Is an LLC Required to Hold Meetings?
6. What Are the Costs of Forming and Operating an LLC?
7. What Are Some Differences Between an S-Corporation and an LLC?
Many entrepreneurs read LLC FAQ to understand what an LLC is and how it works. A limited liability company, or LLC, is a type of business structure that is a hybrid of both a corporation and a partnership. It requires less formality and offers greater flexibility than a corporation while still protecting its owners from liability.
What Is an LLC?
LLCs can be similar to other types of business structures in various aspects. For example:
- An LLC is like a corporation in that business owners have some protection of their assets in the event of liability.
- An LLC utilizes pass-through taxation similar to a partnership or sole proprietorship, which means the profit passes through the company to the owner's tax return.
What Forms Need to Be Filed to Form an LLC?
Formation of an LLC can require multiple legal documents. Some of the documents necessary to the formation include the following:
- Articles of Organization that must be filed through the Secretary of State Corporate division
- An operating agreement that establishes the rights and rules of the members as well as how the organization will be run
- Forms to be assigned an Employers Identification Number, or EIN, for tax purposes
Can an LLC Have an Unlimited Life?
There have been recent changes to the IRS tax code that now allows for limited liability companies to be created without providing a dissolution date, therefore allowing them to be set with unlimited life.
What Are the Definitions of "Managers" and "Members" in an LLC?
In an LLC, members are similar to the stockholders of corporations, as they often own a piece of the company based on the value of their investment. Those designated as managers are people chosen by the members to coordinate, run, and make the decisions on the operations and day-to-day management of the company. A member may also be appointed as a manager.
Is an LLC Required to Hold Meetings?
One of the advantages of an LLC is the fact that it will require fewer formalities than corporations do. One of these formalities is the requirement that corporations have regular meetings. When forming an LLC, you can state whether or not you want to hold meetings in your company's operating agreement. Not requiring meetings will result in less paperwork and less of a risk of violating the law, which could cause members to lose their liability protection.
What Are the Costs of Forming and Operating an LLC?
Depending on the state you live in you may be required to submit an annual fee along with your annual report. You may also be subject to specific state taxes.
For example, some states will require annual LLC renewal fees, such as the following:
- California: California requires a $20 reporting fee after the LLC has been filed and then again every two years that the LLC is operating. On top of this is an $800 LLC tax that is due annually on the 15th day of the fourth month that the LLC was formed and then annually after. LLCs can owe additional state tax if their income exceeds $250,000.
- Nevada: In Nevada, a $150 fee must accompany the company list of managers and members along with a $200 fee and a $200 Business license application fee that must be sent within 30 days of filing the LLC. There are no state taxes.
- Delaware: In Delaware, there is no state tax, but LLCs are required to pay a $300 fee each year on June 1 following their formation.
- New York: The state of New York requires publication of an announcement about the LLC in at least two newspapers in the county where the LLC is forming. Fees for publication in the state can run up to $2000. Once published, the company must provide a certificate of publication to the state along with a $50 filing fee.
What Are Some Differences Between an S-Corporation and an LLC?
While an S-corporation and an LLC are very similar in regards to tax characteristics, there are fewer restrictions and more flexibilities in the running of an LLC. As one of its limitations, an S-corporation can only have one class of stock and no more than 100 stockholders. Owners of an LLC are required to pay taxes for social security and Medicare on all of their profits, while S-corporation shareholders do not have to pay taxes on anything above their annual salary.
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