An LLC (limited liability company) is a business structure that can be formed in the United States, offering benefits including taxation and management flexibility. Other business forms include corporations, partnerships, and sole proprietorships, an LLC stands out for its unique characteristics. It encompasses aspects of both corporations and sole proprietorships/partnerships. Unlike corporations, LLCs are not subject to double taxation and can be structured as single member entities or partnerships.
An LLC legally separates business owners from their businesses. This means that after the formation of an LLC, the owners are not personally liable and receive asset protection against creditors, lawsuits, or debts. An operating agreement is recommended for LLCs, outlining roles and responsibilities, while the annual report filing ensures compliance. For liabilty protection and ease of compliance, consulting with a lawyer during formation is advisable, particularly for understanding state-specific requirements and fees.
Forming an LLC is usually done for one of two reasons (or both), either for limited liability or for its flexibility. For example, an LLC can be a single-owner business, a partnership, or a multi-member structure. There is also no limit to the number of members in an LLC, whereas certain types of corporations limit the number of members.
When forming your business as a corporation you have many rules to adhere to, but LLCs are automatically taxed as a pass-through entity. This means that the profits and losses trickle down to their owners. Corporations can be taxed twice, once at the corporate level and again for each individual shareholder. LLCs are not subject to double taxation.
If you want to establish an LLC in Delaware there are a few requirements you need to meet. Follow these steps to ensure that your business meets all the state's LLC requirements.
In order to form an LLC, you are required to choose a unique business name. It must be unique within the state of Delaware, and also have a variation of “Limited Liability Company,” within it.
The registered agent is the person who accepts mail, and due process on behalf of the business. This person can be a member of the LLC, a manager, or a . third party service. The only requirements are that they must be over 18 years of age, have a physical presence in the state of Delaware, and be available during business hours.
You do not legally have to have an operating agreement in the state of Delaware, but it is recommended. If you do not have an operating agreement then your LLC will be governed by the laws of the state.
In this case, you should draft an operating agreement that includes the roles of each member or manager, as well as how the business is run. This can help to settle disputes, should they arise, and will act as a legal code of conduct for managing the business.
The articles of organization are required in order to form your company. It should include the address and name of your LLC, the registered agent, member and manager names. It will require a $90 filing fee as well in the state of Delaware.
There are multiple tax forms required for an LLC to file taxes.
You can find these tax forms at your state's official website.
LLCs can be formed for many types of businesses. Small businesses and large businesses can form LLCs, as well as those with only one member. It is one of the more common businesses to form because of the ability to elect taxation, and the limited liability it affords.
For single business owners it makes more sense to form an LLC versus a corporation. Larger businesses can also utilize LLC structure because it provides flexibility. The main difference between a corporation is the ability to offer public shares on the market. Rather, LLCs require every member to be aware of, and vote, on new members joining. This can make it difficult to sell their portion of the business.
Additionally, for high-income individuals sometimes forming a corporation is the better option. This is because the federal corporate taxation level is 21%, while LLCs are not taxed directly. Instead they pass through the profits and losses to owners at their personal tax rate. However, an LLC can elect taxation as a corporation so this means that forming as a corporation is not always necessary to reap the benefits.
Working with a lawyer to form an LLC is always a good idea. It allows you to stay in compliance more easily, and ensure that your LLC is formed properly. There are different requirements in each state as well. Therefore even if you have already formed an LLC in another state, it is essential you learn the laws that govern a Delaware LLC, as well as the requirements and accompanying fees.
Especially when working with multiple partners, having a clear operating agreement is essential. Working with a lawyer will ensure that your paperwork is completed properly, all requirements met, and that you will have limited liability protection from your LLC.