Why should I form an LLC? You should create an LLC because of the various protections and flexibilities it affords to small business owners. An LLC stands for Limited Liability Company, and it is most notable for its pass-through taxation method. Pass-through taxation occurs when losses and profits flow from the business to individual members to file on their individual federal tax returns.

LLCs are generally taxed as either a sole proprietorship or partnership. Sole-member LLCs are taxed as sole proprietorships, while multi-member LLCs are taxed as partnerships.

  • Note: LLCs do not pay business income taxes.

LLC owners get the same protections as a corporation, meaning that owners cannot be held liable for the debts or liabilities of the business. LLCs combine the tax structure of a partnership with the protections of a corporation. LLCs are governed under state law, and you would register an LLC in the state where you intend to conduct business.

In an LLC, owners are called members and are similar to corporate shareholders. The members choose managers who run the daily affairs of the business, comparable to a board of directors and officers. On the other hand, members may also run the organization themselves, as would be the case with smaller or sole-member LLCs.

LLC Protections

The term “limited liability” means that LLCs limit an owner’s personal responsibilities of the business. This means that debts are solely the responsibility of the business and not the owners. This provides a safeguard against lawsuits and judgments if members face litigation. This also means that creditors cannot petition for the personal assets of the members. With that, such protections do not apply to unlawful acts committed by LLC members, and the courts can remove protections if members committed negligence.

LLC Taxation

A corporation is not designated as a taxable entity, which is why it is either taxed as a sole proprietorship or partnership. A specific return is not required for an LLC because the business itself does not pay taxes, and members only pay taxes owed from individual tax returns. Also, LLCs can choose a corporate tax classification, but you should conduct more research to find out if such a move would be the right move for your business.

LLC Creation Process

To create your LLC, you need to do the following steps:

  • Choose a creative business name
  • Register your articles of organization
  • Choose a registered agent
  • Pay the necessary fees
  • Publish an intent notice in a local newspaper (if required in your state)
  • Draft an operating agreement

LLC Naming Process

When it comes to the LLC naming process, you must ensure that the name does not duplicate another LLC that’s registered in your state. You may search the state database of your state to find business names already registered. Moreover, the name must adhere to the regulations of your state. For instance, your name must generally include such designators as “Limited Liability Company” or “LLC.” You may come across other requirements in your state, and you should research all regulations in your state before registering your name.

Articles of Organization

An articles of organization is the document that creates your organization, and it is a basic document that mentions information about your LLC. Your state may also provide you with a blank template where you fill in general info about the business. The document will ask for such info as:

  • LLC name
  • Business address
  • Name of owners/members
  • Name and address of registered agent

Other states may call it a certificate of organization or certificate of formation. Upon registering the articles of organization, you must pay a fee that varies by state, although it generally costs as little as $100 in most cases.

Registered Agent

A registered agent is the person accepts official documents on your organization’s behalf, and choosing an agent is a general requirement. Depending on your state laws, a registered agent can be the following:

  • Yourself
  • A person within your LLC
  • Friend, family member, or friend
  • Attorney

Newspaper Notification

Certain states may require that you publish the creation of your LLC in a local newspaper over the course of several weeks or months. Check with your local state to find out if you would need to satisfy this requirement, and you may go to your local newspaper to find out how to start the process. Officials may also assign a newspaper for you, and you have to publish in the county where you created the LLC.

Why should I form an LLC? If you have more questions on the LLC process, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers will give you more information on registering an LLC and will help you determine if an LLC would be the right fit for your business. In addition, they will help you maximize all the tax-saving strategies that LLCs provide to owners.