Credibility, personal liability protection, tax options, and more. A Limited Liability Company, or LLC, provides a range of benefits for business owners.
Although LLCs are considered one of the simplest and most flexible business entities, that doesn’t mean there are certain requirements that must be met.
What makes an LLC so flexible? And what information do you need for an LLC? We take a deep dive into these questions and more in the article below.
How an LLC is more flexible than a corporation
LLCs are known as the most flexible business structure, but what does that mean?
The differences between business structures can be complicated when combing through the fine details.
For hundreds of years, corporations have had strict laws governing their operations. Small business owners are often overwhelmed by the different rules and regulations of each state. Additionally, corporations have a strict management structure with a board of directors, officers, and shareholders.
LLCs have many options when it comes to management structure – they can be a partnership, single-owner business, or a multi-member structure. And unlike corporations, LLCs do not have limits on the number of members.
While an LLC also has rules to comply with, those rules are generally agreed upon in the operating agreement. These rules can also be changed once the business is running.
Lastly, corporations are subject to double taxation, whereas LLCs are automatically taxed as a pass-through entity. This means as an LLC, all profits and losses of the business are reported on the owner’s personal tax return.
What is Required of an LLC
Although LLCs are among one of the simplest business structures to form, it still requires some tedious tasks.
The requirements to form an LLC are the specific steps you must take in order to form an LLC. While each state has a list of specifications, there are generally a few documents you are required to file.
Business Name: It’s required for all LLCs to have a unique business name like no other in the state. The name must also include a variation of “Limited Liability Company,” within it.
Registered Agent: It’s also required by all states that an LLC have a registered agent. This is someone who accepts important and legal documents on behalf of the business. Registered agents must be over the age of 18, have a physical location in the same state as the LLC, and be available during normal business hours.
Operating Agreement: An operating agreement is one document that separates an LLC from a corporation. It ensures your LLC is not governed by the laws of the state. This document is very important to have drafted if you have multiple members because it acts as the legal handbook to help better manage the business and settle any disputes.
Articles of Organization: These documents tell the government information about your business. It includes the address and name of your LLC, as well as those of all the owners and the registered agent. Filing this document is one of the main required fees when starting an LLC.
Business Licenses and Permits: Depending on the industry, products, services, and state, you may be required to obtain business licenses, an Employer Identification Number (EIN), and certain permits.
Tax forms: LLCs often need a few different forms when filing taxes. For instance, tax form 1065 is filed along with other income tax documents when you have a partnership.
Who is an LLC Best for?
An LLC structure is recommended for anyone who wants to separate themselves and their personal assets from the business. Whether you’re a freelancer or entrepreneur with only one member, or a small business owner with multiple members, LLCs offer the perfect combination of simplicity and personal liability protection.
If you’re a start-up business searching for traditional funding options, then an LLC structure may not be the best fit for your situation. This means that if your business is looking for investors, an LLC is often viewed as a risky option and will not be considered. Additionally, for those with larger businesses, corporations may be the best option due to the strict management structure it provides.
Work with a Lawyer to Create Your LLC
Forming an LLC does not require a lawyer. However, there are numerous benefits to working with a lawyer. The services that a business lawyer provides can save you time and money in the long run. They can also provide continuous professional help and ensure that your filings are done correctly.
Simply put, there are two main reasons to use an attorney to form your LLC:
- A lawyer will help ensure that you pick the right entity for your situation.
- A lawyer will help create and thoroughly explain all the documents necessary to get your company up and running.
With all the requirements surrounding business structure formation, it’s always best to have an experienced professional by your side to ensure compliance from start to finish.