As your business grows, protecting your assets and your company becomes increasingly important. Forming an LLC is one way you can do that.
A limited liability company is defined as a corporate entity whereby the owners (called members) are afforded “limited liability” in most circumstances involving the company. The LLC is registered at the state level, and if the LLC is properly managed, only the LLC itself (and not the owners) are liable for the debts, liabilities, and obligations of the LLC.
A LLC becomes a living entity through the actions of the owners, and business is conducted through the entity. LLC’s provide liability protection, flexibility, tax advantages and survivability for its owners, among other benefits. Anyone operating a business as a sole proprietorship or partnership, without state registration, would benefit by forming a LLC.
LLC’s provide a formal business structure that permits specific ownership levels and responsibilities among the owners, as well as the owners to take advantage of the many important benefits that LLC’s offer (see below).
Because LLC’s conduct business, it’s very clear what assets are owned and managed by a LLC, which greatly simplifies an owner’s ability to sell the business at a later date.
LLC’s are an excellent choice for most business owners, and unlike corporate entities (such as S-Corporations or C-Corporations), most states do not require annual or bi-annual reports, and they are simpler to setup and maintain. They are also less costly to initially setup, because of their simplicity.
Furthermore, by forming a specific entity at the state level, it forces the owners to specifically define ownership percentages and powers, which helps reduce the chance of confusion, misunderstanding, and conflict among the owners. Second, business entities such as LLC’s can take additional tax exemptions that are unavailable to individuals, such as sole proprietors (health insurance is an example of this). Third, a LLC shields the owners from most types of personal liability that could occur while conducting business. Fourth, a LLC will survive even if the only owner dies. This helps maintain value for family survivors, employees and the estate of the owner. Fifth, a formal structure such as a LLC permits the owner to partner with others at different levels of participation, by carefully controlling ownership levels, providing flexibility in how one partners with others.
A Limited Liability Company can protect the members or owners from personal liabilities resulting from business activities. If the business harms someone or violates some ordinance or statute, it is the LLC and not the owners, who bear responsibility.
As your business grows, doing business as a LLC adds a level of prestige to your business and gives your customers, vendors and partners the confidence that you know how to run and manage a business.
Of all the corporate entities, a LLC is perhaps the least costly to manage and maintain. Making fundamental changes to the management structure simply require a change to the Operating Agreement, versus any formal documentation submitted to the state. Most states do not require franchise fees, and most states do not require regular corporate reports, for LLC’s.
Once the LLC is formed, all you need is an operating agreement. The operating agreement dictates how the company is run, managed and how ownership is dealt with between the owners. It can be thought of as a “partnership agreement” between the members or owners.
LLC’s provide a great deal of flexibility in how they are taxed (i.e. they can be taxed as an S-Corporation or C-Corporation for multi-members), and therefore you can dictate different profit distributions, depending on the circumstances and what you want to accomplish.
LLC’s permit you to bring on partners at different, clearly defined levels. This means you can have “silent partners,” “minority owners,” “investors” and more, and clearly, indicate roles and responsibilities. It is relatively easy to admit or remove members, depending on the circumstances and the needs of your business.
LLC’s enable you to separate important assets or business functions, giving you the ability to vary or alter ownership among these assets or functions. You can also sell off or merge such assets or functions much more easily than if all your assets or business functions were in one large whole.
LLC’s can be “Member Managed” or “Manager Managed.” Member managed simply means the members all have certain rights and powers, and vote among themselves for important decisions (which can either be unanimous or by majority). Manager managed means the members vote to install a manager, who can either be an outside individual, company or another member, that runs the LLC on a day-to-day basis, making day-to-day decisions to run the LLC. Important decisions are still left to the members to vote among themselves (again, either by unanimous or majority vote).
A LLC will survive you, should you become deceased or incapacitated. A business entity, such as a LLC, is the ONLY way to cost-effectively ensure your business survives to the benefit of your family or estate.
A LLC provides tax advantages over a sole proprietorship or partnership, in that the IRS permits more deductions. For example, medical insurance expenses. Consult your tax advisor for more information about the tax advantages associated with a LLC.
Sole-member LLC’s are considered “disregarded entities” by the IRS, which means the profit, losses, and expenses flow through your individual Schedule C on the 1040. Multi-member LLC’s can be considered S-Corporations (the default), C-Corporations or partnerships, depending on what you tell the IRS.
Starting an LLC is easy with Law 4 Small Business. You just need two things to get started:
We have made it easy to get started. All you need to do is fill out our easy LLC Formation Questionnaire.
Forming your LLC with L4SB puts experienced business lawyers on your side. We ensure your business is properly registered in the state of your choosing, and we offer competent, sound legal advice to help you maximize the benefits and potential of your new LLC.
If you chose L4SB as your registered agent, it means you have licensed attorneys acting as your registered agent, unlike the other guys across the wire. This means your LLC benefits from attorney-client privilege, and you can rely on the advice and counsel of competent business lawyers to advise you in all phases and aspects of your business.