1. Setting Up an LLC
2. How Can an LLC Benefit a Small Business?
3. When Should I Form LLC?
4. Do I Need an LLC to Start a Business?
5. Why Would I Need an LLC?

Should I start an LLC? This is an important question to ask yourself before forming this business type. A limited liability company, or LLC, is a business entity that gives you limited liability for your assets and flexibility to build and manage your company, similar to corporations and partnerships.

Setting Up an LLC

  • Choose a business name. You must think about a couple of things before choosing the LLC name.
    • Pick a name that is unique in the state and not used by another company.
    • The name must have an LLC term, like “LLC” or “limited liability company,” at the end of it. It must also meet other business name requirements set by the state.
  • Create and file Articles of Organization. This document is easy to create, especially if your state has a fill-in-the-blank form. The number of signatures required can vary from one member to all members.
  • Appoint a Registered Agent. This is an individual or company that sends and receives any legal documentation for the LLC. Usually, a member is placed as the registered agent.
  • Payment of required fees. Some states require a one-time fee to register your business, but others ask for additional fees to be paid.
  • Publish a Notice of Intent. Depending on the state, you may have to place announcements in the local newspaper about your LLC being formed. This may be done for a few weeks or months. Check with your state to see if these notifications are required.
  • Create an Operating Agreement. Depending on the state, an operating agreement will prevent any issues among the members of the LLC. It helps members know their obligations and rights.

How Can an LLC Benefit a Small Business?

Limited liability is a major benefit of creating an LLC. It also prevents you from being taxed twice; you'll only have to report individual taxes to the IRS.

When Should I Form LLC?

LLCs were designed to make running a business easier for the owner. Most states only ask for a start-up fee, Articles of Organization, and annual reports. If you're the only member of your LLC, you'll need to submit Schedule SE and Schedule C forms to the IRS. If there are two or more members, you'll have to file a 1065 partnership return and a K-1 form for each member's portion of the profits and losses.

Do I Need an LLC to Start a Business?

Limited liability and a proper business structure are not exclusive to LLCs; other business types can have these benefits, too. Other business types to consider include the following:

  • Sole Proprietorship — owned by one person, but has no limited liability.
  • General Partnership — owned by two people or more, but none of the partners have limited liability.
  • Limited Partnership — owners are in two categories: general partners who manage the company, find solutions for problems, and have asset protection, and limited partners who only invest in the business.
  • Corporationmost like an LLC, where investors own and operate the company while investing in the entity.

Failing to create an LLC or other formal business structure may cause you to encounter the following issues while starting or running your business:

  • Unprotected personal assets. Sole proprietors and general partners may have to give up their personal assets if the business is sued or found in debt.
  • No structure. Improper division of obligations, profits, and other such items could bring conflict among the members.
  • Raising funds becomes harder to do. Some banks or investors may not find it beneficial to give loans or money to sole proprietors or general partnerships.
  • Difficult to market. Having a unique name can prevent problems with advertising in your state, so you should register your LLC.

Why Would I Need an LLC?

  • Personal assets are safe from business debts. Any lawsuit or debt account in the LLC can be resolved using only the assets of the LLC; this allows your assets to be protected.
  • Funding by investors. You can do this by extending membership to people with money, services, or other forms of capital.
  • Tax benefits. Unlike a corporation, an LLC as a business doesn't file taxes to the IRS.

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