Which LLC is Right for Me: Everything You Need to Know
Which LLC is right for me is a common question among new business owners and you should also know that forming an LLC is both easy and inexpensive.4 min read
Which LLC is right for me is a common question among new business owners. You should know that forming an LLC is both easy and inexpensive. There are some steps you’ll need to take when forming your LLC, which can easily be done on your own. These steps include choosing your business name, selecting a registered agent, filing the Articles of Organization, drafting an Operating Agreement, obtaining an EIN, and obtaining applicable licenses or permits that might be required. But before you go through any of these steps, you should first learn what an LLC is all about – the advantages it can offer and how you can benefit from operating an LLC.
LLC: An Overview
An LLC is also referred to as a Limited Liability Company. It operates similar to a corporation in that it offers limited liability protection for its owners (members). Such members cannot be held personally liable for the debts of the business. While this is one of the greatest benefits of the LLC, it is not absolute. Specifically, plaintiffs could in fact “pierce the corporate veil” if they can prove that the member injured them, acted illegally, engaged in fraudulent activity, personally guaranteed a business loan, or held the business out as an extension of him or herself. The LLC is also similar to a partnership in that it operates as a pass-through tax entity. This means that all of the business profits pass through to the members who will report it on their personal income tax returns.
When it comes to other benefits of the LLC, these can include tax advantages pertaining to greater deductions, enhanced credibility for creating a formal business structure as opposed to operating as a sole proprietorship, and a greater ability to raise capital.
Choosing a State to Register In
A lot of new business owners will choose to form an LLC in the state where they reside. Keep in mind that this isn’t required. You can form your LLC in any state you choose. Therefore, before forming your LLC, think about what states can offer you certain benefits, as some states can provide additional benefits over others, i.e. Wyoming and Delaware.
If you do choose to form an LLC in a state other than where you live, remember that you will need to form a foreign LLC in your home state. This will result in essentially two LLCs, meaning that you will have to pay twice the costs, file twice the paperwork, and pay twice the taxes, potentially.
Choosing Your Business Name
There are usually 3 rules for choosing your business name, and these requirements are:
- The name must be distinguishable, meaning that it must be different from any other LLC name being used in the state in which you want to register
- Your name must include the LLC business designator at the end, i.e. LLC, L.L.C., or some variation thereof
- Your name must not include prohibited terms, such as Bank, Insurance, University, Government, etc. You can find a full list on your state’s website.
Choosing a Registered Agent
You’ll have to choose a registered agent for your LLC. This agent will have to be a resident of the state. Therefore, if you choose an individual, he or she will need to live in the state. If you choose a company, that business must be authorized to do business in the state.
Articles of Organization
Next, you’ll have to file the Articles of Organization, which includes the following information:
- Business name/address
- Registered agent name/address
- Ownership names/addresses
- Membership ownership percentage
- Signatures of owners and registered agent
Form Your LLC Online
You can easily form your LLC online. You’ll want to visit your Secretary of State’s website in the state where you plan on registering to identify what is required of you when forming your LLC. Be ready for the information you’ll have to input into the Articles of Organization. You’ll also have to pay an applicable fee along with filing this document.
Next, you’ll want to obtain an EIN (Employer Identification Number) on the IRS website. If you plan on having employees, then you will need this ID number. If you operate as a single-member LLC with no employees, then you won’t necessarily need this number. But if you don’t obtain one, then you will need to use your personal social security number for all tax forms. But rest assured that if you do submit a request for an EIN online, you can obtain this number almost immediately. This is why forming your LLC online is so beneficial for those who are ready and eager to begin doing business.
If you need help learning about what type of LLC is right for you, or if you need help forming an LLC, 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, Menlo Ventures, and Airbnb.