LLC in US: Everything You Need to Know
Starting an LLC in the US is increasingly becoming one of the most common forms of business formation because of its flexibility and taxation benefits.3 min read
Starting a LLC in the US is increasingly becoming one of the most common forms of business formation. They are quite popular because of their flexibility and taxation benefits.
What is a Limited Liability Company?
A limited liability company, commonly referred to as an LLC, is a form of business that intertwines the benefits of liability protections of corporations with the flexibility of a partnership. LLCs have features of both of these business entities, making it commonly known as a “hybrid” entity. LLCs are not corporations, as the definition is different.
Owners of an LLC are called members, while the management team is referred to as managers. Managers do not have to be humans. A trust or partnership can actually serve as a manager in some states. Managers do not have to be a resident of the United States.
LLCs are not taxed as a separate business like C corporations unless they choose to. All profits and losses of the business are passed through to each member of the LLC. LLC members then report profits and losses on their personal income taxes as you would a partnership.
LLCs are not tied to the same rigid rules as corporations. LLCs do not have to name managers if they do not want to. In a one or two-person LLC, those members can also serve as managers. Bigger LLCs should have managers, as all the owners will have the liability to make decisions on their own signatures. You can be the only owner of an LLC in every state but Massachusetts. That state is expected to eventually allow one-person LLCs.
Forming an LLC is not incorporation. You form it by filing Articles of Formation that are signed by the organizer.
What Are the Differences Between a Limited Liability Company and a Partnership?
The primary difference between LLCs and partnerships is that LLC members are not going to be held personally liable for the debt and liability of the business. The creditors of an LLC cannot go after the members own assets to pay off debts of the LLC. Partners are not afforded LLC protection unless they designate limited partners in their partnership agreement.
Why are LLCs so Popular?
There are many reasons why LLCs have become so popular with business owners:
- Two new LLCs are formed for every new corporation, except in New York
- LLCs are as easy or complicated as the owners prefer
- No annual meetings are required
- While an operating agreement should be in place, LLCs do not require long and complicated agreements
- There are only a handful of mandatory requirements
- LLCs with one member are taxed like a sole proprietorship, while two or more member-owned LLCs are taxed as partnerships
- Single-member LLCs do not have to file their own tax return. The owner can report it on his or her own Form 1040
- If LLCs are not working out, a one-page form can be filed with the IRS that will convert it to an S or C corporation. This can be one once in five years with no penalty
Can a Non-Resident of the United States Form or Own an LLC?
An LLC based in the U.S. has many advantages for American and foreign business owners. In general, there are no restrictions in LLC laws that prevent non-citizens form forming an LLC, or who can be a member of an LLC. Non-residents may form an LLC in any state they choose. Those wanting to do business in the U.S. from abroad may form an LLC. For those paying taxes from abroad, it is ideal to open an LLC in Delaware, because the taxes are low, they have maintenance fees and rigid corporate law. Wyoming is also a good choice. Nevada is also a good choice due to strong privacy laws.
If you hope to get funding through angel investors and VCs, a C corp is a better option. There are no requirements that actions of the LLC are to be managed from inside the U.S. or that any of the activities should occur inside the country.
While non-residents are allowed to own an LLC, there are some restrictions for certain businesses under different state laws that can restrict ownership for many reasons aside from residency or citizenship.
State laws often require that members of an LLC that are conducting medical business be licensed to practice medicine in that state, or those practicing legal activities be a licensed attorney.
If you need help with forming an LLC in the US, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Stripe, and Twilio.