From retail stores and real estate, to e-commerce and restaurants, millions of start-ups have been formed as LLCs, or Limited Liability Companies. But if you’re new to the world of entrepreneurship and need some help deciding on a legal structure for your business, this brief guide might be worth reading.
Let’s begin with the basics:
What is an LLC?
As the owner of an LLC (provided it’s being run properly), you do not become personally liable for any debts or obligations accumulated by the business, giving you what is known as ‘limited liability protection,’ in much the same way as a corporation.
Are there any tax benefits associated with LLCs?
With only one tax level thanks to apass-through treatment of tax, LLCs are able to avoid what C corporations are faced with, and that’s double taxation. In much the same way as an S corporation, only LLC owners are taxed.
How can you form an LLC in the simplest way?
If an LLC will have a single owner, you may be able to form it with the help of an online service provider, but if an LLC will be more complex – such as if it has multiple owners – you will likely find it quicker and easier to seek help from an entity management firm.
How much does it cost to form an LLC?
Here is a brief breakdown of some of the typical costs associated with forming and running an LLC:
- State filing fees
Depending on the state, this can cost between $35 and $500
- Service provider fees
Depending on the complexity of your LLC, you may need to pay an entity management firm anything from $100 to $500 to help you set it up
- Annual franchise tax
Imposed by the state, this ranges from $100 to $800 per annum
- Registered agent fee
All LLCs must have a registered agent who, in the event that you are sued, agrees to accept legal documents on your company’s behalf. If you hire a professional agent (as many businesses prefer to do), they may charge anything from $100 to $400 annually.
- State report fee
Costing from $200 to $100, your state may request you to file a report with the Secretary of State to keep up-to-date information for the LLC.
- Business license fees
A business license can cost from $50 to $100, and is required by some states, county’s or cities depending on the type of business you’re operating.
- Tax and accounting fees
Accountants can be extremelybeneficial for LLCs, helping them file taxesand produce IRS K-1 statements every year.
How are LLCs owned and managed?
Those owning an LLC are known as ‘members’ instead of shareholders, and they are usually entitled to a certain percentage of the company’s profits, losses, and cash distributions, and have a right to vote on some decisions related to the business, as laid out in the Operating Agreement of the LLC.
One person, an outside manager, or a group of members can manage the LLC, which unlike corporations, does not have a Board of Directors.
What are the some of the main documents required to form an LLC?
Here are just some of the main forms typically required when forming an LLC:
- Articles of organization
The official document used to file the LLC with the Secretary of State.
- LLC operating Agreement
The LLCs owners set down an agreement based upon the owners responsibilities, such as financial, voting, management and capital contribution.
- Business license application
You may be required to produce this according to where your business is registered.
- Employee identification number
An EIN is required by the IRS and can be applied for easily online, free of charge.
- DBA (doing business as)
This form may be required if your LLC will operate under a different name to that with which it was registered with the state.
- Bank account forms
To keep the company funds separate from those of its owners personal funds, certain forms will be required by your chosen bank to open an account for your LLC.
For more detailed guidance on how to form an LLC, or to discuss whether this type of structure is right for your business, schedule an appointment with an entity management firm, either locally, or remotely.