Online LLC: Everything You Need to Know
An online LLC provides the tax benefits of a partnership with the advantages of a corporation in terms of limited liability. 4 min read
2. What Is an LLC?
3. The Advantages of an LLC
4. Disadvantages of an LLC
What Is an LLC?
There are several categories for members, which include:
- Multiple people
- Outside LLC companies
The members have full responsibility for the running of the LLC and can give the last word on all decisions. The LLC is permitted by the state and is subject to state regulations.
Those who run an LLC by themselves are taxed as sole proprietors, and all gains from the company go through their own tax return on the 1040 form to the IRS. If there is more than one member, the entity is called a multi-member LLC and has the same tax category as a partnership. This means that gains and losses go through the tax returns of each member.
LLC members can choose to be taxed in the same way as a corporation rather than a partnership. There are several options available:
- If members want to be taxed as a C-Corp, the 8832 tax form is used to report gains and losses.
- If members want to be taxed as an S-Corp, the 2553 tax form is used to report gains and losses.
The ownership of the LLC is usually stated in terms of percentages rather than numbers of share. For instance, Bob owns 52 percent of the company and George owns 48 percent of the company. The amount of state tax the LLC pays differs according to the laws of each state. There are limits to who can file as an LLC. Those who can’t have this status include:
- Insurance agencies
- Financial companies
State laws can place further limits on what kinds of businesses can have LLC status. Those who provide services such as doctors or lawyers may have their own category, such as a Professional LLC or a PLLC. There is usually a minimum age requirement to become a member, which is usually the age of consent or 18. If members of an LLC want to do business in another state, they must do so through a registered agent. This procedure is termed foreign qualification.
An LLC may seem appealing because it is simpler than other business formats. Corporations are taxed as such, but LLCs and partnerships pass all the gains and losses to its members. However, the assets of individual members are often not subject to liability for the business operations. LLCs often cost less to set up than corporations and do not require the same amount of paperwork. Members are not required to have regular meetings as corporations are and can record whatever data they wish to at their meetings.
Members of an LLC can decide on what structure is best for their company. They can have various categories of owners, unlike S corps that have to have one type of ownership. S corporations have many rules determining who can be an owner, and an LLC, by contrast, has fewer restrictions on ownership. Those who are members can divide up the profits however they see fit determined by how much each adds to the company.
LLCs are registered by each state and give customers a feeling of security. In addition, once “LLC” is added to the name of a business, the owners have full rights to the name of the company. Another advantage of LLCs is that their owners are not required to be permanent residents of the United States or U.S. citizens.
Disadvantages of an LLC
There are also drawbacks to LLCs. Many state laws require that LLCs be closed if any members decide not to participate anymore. If the LLC is successful, the members could face high rates of self-employment taxes. Unlike a corporation, members are not able to issue stock to attract and reward investors.
When a member is no longer a part of the LLC, it is often ended. If a business that already exists becomes an LLC, there could be increased taxes on any assets that could appreciate. Since laws differ from state to state regarding an LLC, there may be a lack of consistency in the way these companies are treated.
LLCs may save time and paperwork, but there are still significant fees required to start one. It is also important to open a business checking account to make sure business and personal finances are fully separate. Precise records are needed to ensure that personal and business finances are not accidentally combined.
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