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.