Starting a business can be very stressful. You have to carefully organize the ideas for the business in a plan that can be followed. You also have to find the money to start the business. That alone can be a very stressful task. And, of course, you have to let people know that your new business exists at all.

Aside from all of this, there is one more thing that is very important to do when starting a business. You need to make your business separate from yourself so that your personal assets are protected. As exciting as starting a business can be, you must plan ahead and have a way to protect yourself in case your business is sued or experiences other legal problems.

The way to do this is by creating a separate legal entity for your business. If you are starting out small and perhaps are only going to have one employee—yourself—then the easy way to do this is by forming a limited liability company.

The purpose of this article is to explain the characteristics of a limited liability company, and why this type of business entity is conducive for many small businesses. It will also give details on establishing a limited liability company, as well as give some examples of the paperwork that will be necessary to establish your new company.

Before we present the information, it is important to understand what is being presented. The information is this article should only be used to give you a better understanding of one of many options that are available. Only have consulting with a lawyer or other licensed professional should you make important decisions about protecting your personal assets and the assets of your business.

What is an LLC?

A limited liability company (LLC) is a legal business structure that separates a business and its assets from those of the owner or owners of the company. Within the past 10 to 15 years, the LLC has become a very popular business entity. The LLC is relatively easy to establish—especially compared to other legal entities for businesses. In addition, the LLC is easy to maintain with a minimum of paperwork for the owner.

The LLC is now recognized in all fifty states. In addition, unlike other types of legal structures, an LLC can have only one owner. So, if you are starting a small business where you are going to be the owner and the only employee, you can still create an LLC for your situation.

The Paperwork

In order to create an LLC, you need to register Articles of Organization with your local probate court and the state. The Articles of Organization lay out the name of the company, the owners, and the registered agent—or the person who can receive official paperwork from the state.

In addition to naming the owner or owners of the business, the articles of organization also contain other clauses that are important to a business. For instance, they usually have a clause stating that the owner or owners of the LLC are not responsible for the debts of the company. Of course, that is unless the owners have committed fraud in any way.

When you register the business with your local government and the state there is a fee that has to be paid. In addition, most states charge some type of business or franchise tax every year.

Once the initial paperwork and fees have been taken care of, the yearly maintenance of an LLC is fairly simple. Unlike a business that has been incorporated, an LLC usually does not have to file minutes of corporate meetings or a yearly annual report. This is what makes the LLC so appealing, especially to small businesses. The business owner can focus on actually running the business—not making sure that paperwork is constantly being filed to the state.

Taxes

Another way that an LLC has an advantage over other business structures is how it is taxed. By default, an LLC has what is known as pass-through taxation. This means that the income and expenses of the business are reported on the income taxes of the owner or owners.

With this, the business does not have to file its own income tax forms. In addition, this means that the overall income from the LLC is taxed at the tax rate of the owner, rather than as a separate entity. For most small businesses, this is actually much easier and much better.

Now, once the business grows and the profits increase, the way that the LLC is taxed can be changed. The owners can elect with the IRS to have the business file its own tax return. Before making this type of decision, a knowledgeable tax professional should be consulted.

Sample Articles of Organization

Below is a sample of Articles of Organization. These should not be considered an exact or complete set of articles for a business. They are simply provided so that you can understand how they are written and what information they contain.

Article I

Name of Company

The name of the limited liability company shall be: ____________________

Article II

Duration

The Period of duration for this limited liability company shall be perpectual. (If the LLC is going to be established for a specific period of time, then that can be listed here)

Article III

Purposes

In this article, you list why the LLC is being established.

Article IV

Registered Agent

This is where you list the name and address of the person who receives official paperwork from the state.

Article V

Initial Members

This is where you list the name and addresses of the owner or owners of the LLC.

Article VI

Management

Here is you can either state that the LLC will be managed by its members, or you can list the name of the person who will be specifically managing the company.

Article VII

Indemnification

The members of the limited liability company shall have no liability for any debt, obligation, or liability of the company.

IN WITNESS WHEREOF, the undersigned member has hereunto executed these Articles of Organization on this the _______ day of ______, _______

An LLC can be a great way for a small business owner to protect his or her personal assets with very little expense. The key to making it work is to consult with a legal professional who can assist you to insure that an LLC is right for your specific purpose.